With the United Stated national debt soaring over $13 trillion dollars, many Americans are concerned about the country’s long-term debt problems. In order to decrease the national deficit, the government needs to operate with a budget surplus. For the past 10 years, the federal government’s budget has continually operated at a deficit. As the deficit continues to grow annually, the United States plunges deeper and deeper into debt. Our current method of trying to grow our economy out of debt is not working. Now, let’s take a look at two frequently discussed ways to reduce our growing deficit:
Should the government increase federal taxes?
According to the United States National Debt Clock website, each citizen’s share of the deficit is $42,268.79. In 2009 the government took in about $2.1 trillion dollars in taxes. This is a significant amount of income until you notice that government expenditures total almost $3.6 trillion. This led to a budget shortfall of about $1.5 trillion dollars. One of the methods to close this shortfall being considered is to increase federal taxes.
The goal of raising taxes would be to increase government tax receipts. Income taxes, corporate taxes, and capital gains taxes could be raised. The current highest marginal tax rate in the U.S. is 35%. Over the past year there have been vigorous debates over increasing income taxes on the wealthy. There haves also been debates about adding a value-added tax or a national sales tax. Other proposals being considered are eliminating estate taxes and other tax breaks with the aim of increasing federal income.
Should we decrease entitlement spending?
The other alternative often discussed is to decrease entitlement spending and other government program. Entitlement spending is money used to fund programs like Social Security, Medicare and Medicaid. In addition, the largest portion of the federal government’s budget is spent on defense spending. The problem is that spending on these programs is growing at a greater rate than the U.S. economy. This means that the income generated from tax deposits cannot keep pace with the spending on these programs.
Proposals being discussed to limit spending are placing caps on the amounts that can be spent on any government program. This would force programs to make cuts since they cannot exceed the caps. There have also been talks about restricting the growth of every government program to the rate of inflation. That way wages would have a better chance of keeping pace with spending.
The big problem with fixing the debt crisis is that the majority of Americans do not want to eliminate certain spending programs or pay higher taxes. So, the deficit just continues to grow. There is no easy solution to the budgetary problems in the United States. Hard choices will need to be made and it will take some outside-the-box thinking to develop solutions. I think it will take a hybrid approach if we want to seriously eradicate the deficit. I am by no means an advocate for higher taxes but would not be opposed to a modest tax on consumption paired with spending cuts to lower the deficit. It would have to be specifically stated that any money raised from any tax increase or spending cut would have to be used towards eliminating the deficit. Hopefully that will help to lower our deficit for the first time in almost a decade.
How would you fix the US national debt? What do you think is the best solution?
(Photo credit: Kevin Krejci)