A LOOK AT THE NATIONAL DEBT

A friend of mine sent me an U-tube talk by Tony Robbins on the national debt. I will not comment on Tony Robbins because you can view his qualifications by simply inserting his name in a Google search.

His talk again peaked my long-term interest in the National debt, which I became concerned with in the early eighties. In the eighties we were running increasing deficits in the federal government. My concern was growing and in 1996 I purchased a book written by Peter G. Peterson “Will America Grow Up Before It Grows Old?” which I still have in my library. Petersons impressive resume can easily be researched on Google and encourage readers to do so.

So what do we do about the deficit? It is a natural to blame our predecessors for the problem but that does not solve the problem. A quick look at the past clearly shows that deficit spending is not a new problem. As Peterson pointed out in his book we have digging this hole for some time. The data below was extracted from a spreadsheet down loaded from the Internet. I will send the original to anyone on request.

	Receipts	Outlays	Surplus or Deficit		President
1982	617,766	745,743	-127,977	-17%	Reagan
1985	734,037	946,344	-212,308	-29%	Reagan
1990	1,031,958	1,252,994	-221,036	-21%	Bush
2000	2,025,191	1,788,950	236,241	12%	Clinton
2004	1,880,114	2,292,841	-412,727	-22%	Bush
2008	2,523,991	2,982,544	-458,553	-18%	Bush
2009	2,104,989	3,517,677	-1,412,688	-67%	Obama
2010	2,162,724	3,456,213	-1,293,489	-60%	Obama
2011	2,303,466	3,603,061	-1,299,595	-56%	Obama
2012 est.	2,468,599	3,795,547	-1,326,948	-54%	Obama

The reasons for the deficits are many. To iterate a few: Defense spending, infrastructure investments, Social Security, farm programs. Veteran benefits, Medicare and Medicaid.

The simple answer is cut spending. But how?

Looking at the 2011 Federal Budget where to cut seems obvious. Amounts are shown in billions of dollars

	FEDERAL TAX INCOME  & EXPENSE (2011)
		INCOME			EXP.
SS & Medicare		$865		SS	$707
Income		$899		Medicare	$724
Corporate		$191		unemp	$553
Other		$209		Defense	$694
Deficit		$1,299		Discretionary	$435
Total		$3,463		One Time Exp	$154
				Interest	$196
				Total	$3,463

Al’s budget is a combination of increased taxes and cuts.

FEDERAL TAX INCOME          & EXPENSE (Al's budget)
		INCOME			EXP.
SS & Medicare		$900		ss	$707
IT		$1,000		Medicare	$500
Corporate		$200		Unemployment	$400
Other		$300		Defense	$447
Deficit		$0		Discretionary	$100
Total		$2,400		One Time Exp.	$50
				Interest	$196
				Total	$2,400

But Al’s budget of increased taxation and reduced expenses won’t work, even if it would be passed by congress. The best example of why my budget is faulty can best be illustrated by the General Motors (GM) bailout.

It became apparent to many economists, which the United States economy was in trouble in the year 2007. Both personal and Federal Government debt was increasing rapidly. By mid 2008 a stimulus attempt was tried by refunding all taxpayers a cash refund further increasing the Federal debt. By Mid 2008 Banks were seeking a bail out from congress resulting in the TARP program, which by 2010 added 50 billion dollars to our national debt. As the banks were seeking financial relief GM and Chrysler were heading toward bankruptcy. They joined the banks seeking taxpayer funds from congress. Congress refused! It was obvious that the major problem of Chrysler and GM was mismanagement. The solution for both was bankruptcy.

Chrysler, a much smaller company, was taken over by Fiat of Italy. GM tried to sell of divisions but there were no takers. For example they tried to sell off the Hummer to China as a military vehicle. China refused!

So why not let GM dissolve?

In an article in the Wall Street Journal it was estimated that an immediate effect of a total dissolution of GM, immediately one million people would have been unemployed and as dissolution was completed more would be unemployed. This would have two major effects.

The first would be a tax revenues lose to the Federal Government. If the average salary for the out of work GM employee or supplier were fifty thousand dollars the Federal Government would not receive estimated twelve thousand dollars revenue in employment and income taxes or about twelve billion dollars. And if each laid of employee received half of their wage in unemployment that would be another twenty five billion dollars for a total of thirty seven billion dollars. This is for year one.  The initial taxpayer cost for saving GM was reported at fifty billion dollars. To date at least twenty five billion has been returned to the US treasury not including money received in tax revenues. GM has returned to a private company under a more professional management and making a profit again and paying taxes. The US government still owns about half the GM with the intent to sell which will further reduce the deficit.

The above is one example why Al’s budget would make the economy worse and the deficit worse. So what is the solution?

First we as taxpayers must have a discussion (or education) on investment and expense. Once we understand this we will start to invest and work our way out of the deficit spending.

It took three decades to work our way into this mess and it will take time to work our way out. We need to understand how we are spending money and does it make sense. We must invest in education for skilled craftsman, engineers, business mangers and research scientist. When this educated generation goes to work we will start working our way out of this mess.

A final comment on veteran benefits which is a major expense for Defense and Medicare. Korean war veterans are now requiring many medical services. We have Vietnam, Iraq and Afghanistan veterans in need of medical services with more to come. Some may say I disagreed with these wars. It doesn’t matter. We are a democracy and the majority supported these wars by voting for administrations that led us into these wars. We owe these veterans for serving!

Al Cotter

alvinjcotter@gmail.com

9/6/12