Yes, United States of America government, you have an addiction to debt. Admitting it is the first step. Any ratings agency that still gives the US a AAA is not doing their job.
So what do I think should be done to decrease the debt burden (which is a tax on everything). Some of this will not be easy to do. Some of it will be painful, but the US government cannot continue to operate so deep in the red. These steps aren't necessarily in order.
Step One: Admit the Lie
The lie I am referring to is the Social Security trust fund. The "trust fund" does not really exist. In fact, no government "trust funds" really exist. The federal government is incapable of saving in any way, shape or form. Social Security (like most pensions) is and always has been a pay as you go transfer program. Medicare is also a pay as you go transfer program. Social Security is a tax, not in any way a saving program
Social Security needs to be reformed (I would prefer dropped completely) adding means testing, increased retirement ages and other tweaks (more than likely tax rates will need to be increased). If you want I believe there may be a way to have this as its own self-contained program.
In 2011, the amount that the federal government "owed" Social Security was about $2.7 trillion.
Step Two: A Government Should Not Owe Debt to Itself
Social Security is not the only entity that the US "owes" money to. What I am strongly suggesting the US does is to invalidate any outstanding intragovernmental IOUs. Government debt is a tax.
The amount the US "owed" itself in 2011 was estimated to be about $4.8 trillion. Cut that and you cut almost 28% of the total national debt.
Step Three: Make Treasury Securities Callable
Getting rid of counterproductive intragovernmental IOUs would be an awesome first start. But there is more that needs to be done (over $11 trillion). So how do we partially deal with this $11 trillion dollars (which will keep increasing)? Well, by making it callable. That just means allowing the US government to pay off the debt (T-bill, etc) before maturity - potentially saving interest in the mean time.
The US should be able to pay off debt before it is due, potentially saving taxpayers billions of dollars in the process. I don't think a treasury security (except those less than 5 years) after 2016 should ever be allowed to reach maturity.
Step Four: The Spending Cap Amendment:
Have you heard of the "Balanced Budget Amendment"? Well, there is at least one thing I do not like about that... if your revenue increases, you may have to increase spending. What I am in favor of is a hard cap of $2 trillion dollars a year in allowable government spending.
Red ink bloodbath: I am talking about cutting military spending (like closing all foreign bases, reducing domestic bases, cancelling contracts), eliminating departments (no more Dept of Education, defunding TSA, etc), laying off government workers, etc
As a fiscal conservative, this feels really wrong to say... the US federal government needs to run surpluses and then use that surplus to call in treasury securities, thus reducing debt.
Step 5: The Tax Code:
I favor a flat tax with no deductions/credit. However things are severely complicated by running massive amounts of debt. So what am I actually proposing happens here?
Deductions and credits need to be reduced. I am talking about eliminating such things as the child tax credit and mortgage credits (the US government should not be incentivizing choices with tax breaks). I would also like to get rid of tax breaks for non-cashflow expenditures, like depreciation.
Step 6: Renting or Selling Off Assets:
When some people owe debt that they can't pay, it sometimes gets repossessed. What I am taking about here is stuff like renting out national parks (to be administered by private sector) or outright selling parks - even if it is to foreign concerns. This country can't afford to have nice things. Some of the may need to be sacrificed. Maybe China would like a nice deal on a slightly used Hawaii.
Step 7: Monetizing the Debt:
What is monetizing the debt, you may ask. Monetizing the debt basically means printing money to pay off debts.
The problem here are the impacts that it would have on inflation/purchasing power. I believe that the US should be monetizing the debt at a rate of about 1% over 8 years (roughly $167 billion at current rates, about $20.9 billion a year).
Step 8: The Nuclear Option:
So what should the US do if the government refuses to impact debt (other than adding more of it). If there is not at least a 1% reduction of the total national debt (from current levels) in the next 15 years, then I see the only responsible course of action for the government to take is to default.
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