Okay, so studying taxes isn't exciting to all. But I thought I'd offer a brief overview of what the real issues are with government spending, especially through a lot of the myths/deceptive statements we're hearing nowadays.
The Usual Suspects--Sometimes
So, know this: our real government debt problems aren't caused by many of the things that people talking about: "welfare" (loosely defined), food stamps, waste-fraud-abuse, etc. And just labeling "government spending" or "big government" at fault is unhelpful. And the biggest single program, Social Security, because of how it is paid out (a hybrid actuarial system--people pay in today, receive from others when they retire), isn't really the main driver of debt, either (it has its problems, but those need to be fixed internally). So, what's really to blame comes down to two programs: defense and healthcare spending. These two will come up again.Why these two? Well, a) they are funded out of general taxes and b) they are political favorites. Do we HONESTLY think that the best way to use the government as a tool of economic growth is to fund health care for the elderly, like through Medicare? Ask yourself that and really, really think about it. Okay, done? Yeah, I told you so.
And so why is this a problem? Other than the usual problems with debt, there's this whole thing about that we are not having to take out more debt to pay for our other debt--kind of like what caused the financial crisis (although the government's credit line is way bigger). So it compounds.
And Now, the Unusual (But Entirely Unsurprising) Part
So, a lot of people like to pretend that we've been here before (we haven't--even Reagan hasn't done it). There's a group of individuals on the Far Right (that's the most respectful name I got) that, while calling for cut taxes and cut spending, want to also cut some of the most central organizations to our government's function, like the Congressional Budget Office and the Federal Reserve. So what do they want to keep in tact? Military spending--already the biggest of all of the spending categories in our government, and expand it. Uhh...so you want to shrink the rest of government but make the biggest part bigger? You want to weaken the few controls that there are for stabilization? Yeah, not smart. You're not going to shrink the problem by growing the biggest piece of the pie, because government programs "shrink" slower than they grow.
Democrats/Liberals aren't much better. What's been the biggest Democratic accomplishment of the past 10 years? Sure, it might be getting President Obama elected, but I'd say that it is probably the passage of the Affordable Care Act, "Obamacare" if you will (and I will). Now that falls into the healthcare category mentioned previously, yes? Libs are unwilling to cut healthcare costs by reducing coverage, with the Affordable Care Act greatly expanding the number of people covered by government insurance, mainly Medicaid. And healthcare costs ain't gonna curb themselves. I'm not trying to argue with increasing coverage, but it's not going to get to the debt problem. Facts.
So, healthcare and military spending are the biggest problems, and the two that neither side is going to compromise on. We've made our federal government into a "heavily-armed insurance company." So, then what is the real cause? Ideology, my friends. Inflexible, intractable, and sometimes just plain senseless, this is the polarization you hear so much about. When people talk about bipartisanship, there are really two kinds: one on which people from different parties agree on something and work to pass what they already agree on (i.e. nuclear non-proliferation), and the other on which they are willing to compromise to get something done--swallowing some pride. That's absent.
But there is hope--there are facts out there that happen to be promising for the future of reform. But it's not going to be easy at all. Some people will try to sneak things by the public or use catch-phrases to do stupid things, like how "tax simplification" actually means getting rid of people's favorite, tax preferences (like mortgage interest deductions). Nothing will happen to these, ever.
SO, WHY THE HELL DOES THIS MATTER TO ME, ALEX?
Geez, calm down. I'm getting there.
Okay, so you're probably going to earn some money in the future, yeah? And you probably will stay connected to this country in some way, even if you don't live here or plan to move (the U.S. may be in decline in terms of being the sole source of power on the planet, but it's still the biggest by a long-shot). So, we've established two relationships--paying in, and dealing with the results of what comes out.
These matter because as the debt gets worse, you will see the situation exponentially get worse. Debt grows not because of just interest on that debt, but because we're spending an increasing amount of our annual budgets--what the government spends each year--on just paying the interest. That means that we're not really using government to create anything, buy anything, or do anything, but just paying interest to private hands--often overseas. So this government of inaction gets even less choice. Right now, without this growing problem growing anymore, only 18% of the federal budget is non-mandatory, non-defense spending. That means all of foreign aid, highways, R & D awards, regulatory entities, National Parks, and agriculture (with a few other thousand things). Everything else that government does other than a) Social insurance (Social Security, Food Stamps, Medicare/Medicaid), b) Defense, and c) Interest on our debt, is basically in that 18%.
This should make you think, is that, at all, smart?
We're heading towards what Fed Chairman Ben Bernanke called a "fiscal cliff"--the necessary moves to mitigate this problem will only become MORE difficult, MORE painful, and MORE unpalatable as time goes on.
In order to do what the Republicans want to do--balance the budget with only spending cuts--we would have to cut every penny of that 18% (which is wholly impossible)--PLUS another 12-15%. NEVER.GOING.TO.HAPPEN. That would leave the government with only the Department of Defense, the Social Security Administration, and the Department of Health and Human Services (Medicare/Medicaid), as well as a few accountants at the Department of Treasury (debt payments). No IRS (don't cheer--this would be horrible, actually), no White House, no Congressional staff, no highways, no National Parks, no Washington/Lincoln Memorial (for free, anyway), and no Secret Service. I may be exaggerating a bit (a bit, indeed), but oh, Republicans have called for a tax cut with a spending cut. You've got to be kidding me sometimes.
In order to do what Democrats want to do--oh wait, Democrats tend to avoid discussions about deficits and debt. Okay, while that's not entirely true, we can't just raise taxes a whole lot and not cut anything. And the cuts can't just come from Defense, either. Democrats need to relent something on Medicare/Medicaid or Social Security, as well as other programs.
Conclusion, Of Sorts
So, it's grim, but not impossible. In order to make fiscal sense, you need to have fiscal sanity--and right now, both parties are violating that principle of Einstein's definition of insanity: "doing the same thing over again and expecting different results." Republicans need to not be on such a tirade of government being the problem and not part of the solution, and Democrats need to be on less of a romp about government being the only solution to all of the market's problems. Moderation, indeed.
(Here's an interesting video from "economic master" Tony Robbins--with a mildly entertaining, albeit near-childish, thought experiment about how dire the situation is. There's a number of holes in it, but I thought it was interesting nonetheless.)
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