WE have a debt problem. WE need to solve it.
On December 3, 1793, George Washington was President of the United States and gave his 5th annual message to Congress. In that address he stated “No pecuniary consideration is more urgent, than the regular redemption and discharge of the public debt: on none can delay be more injurious, or an economy of time more valuable.”
In 1811, Thomas Jefferson wrote a letter to his granddaughter Cornelia Jefferson Randolph, which contained his Canons of Conduct. Rule number three was “Never spend your money before you have it.”
So what have we learned from our Founding Fathers? Apparently not much.
The United States is nearing the $20 Trillion threshold on our national debt, and US Senator David Perdue claims that America's real debt shocker is $100 Trillion owed in unfunded liabilities. These figures are probably beyond comprehension for Washington and Jefferson. In fact, they are beyond comprehension for many for us. To even explain these figures we typically need to use infographics.
Microsoft and Johnson & Johnson possess the top-most credit rating from Standard & Poor's, Moody's and Fitch Ratings. The United States Government does not. That has to tell you something.
Less than 30 days ago, Gene Dodaro, the Comptroller General of the United States, published: The Nation’s Fiscal Health. The cover of his report clearly stated "Action is needed to address the federal government’s fiscal future." His cover letter addressed to The President, The President of the Senate and The Speaker of the House of Representatives started by saying:
"The Congress and incoming Administration face serious economic, security, and social challenges that will require difficult policy choices in the short term about the level of federal spending and investments as well as ways to obtain needed resources. These policymakers also face a federal government highly leveraged in debt by historical norms and on an unsustainable long-term fiscal path caused by a structural imbalance between revenue and spending absent a change in fiscal policy."
His report had multiple subheadings listed below which illustrate his primary concerns regarding what he calls the "Significant Changes to the Government’s Fiscal Condition in Fiscal Year 2016"
Modest Federal Revenue Growth Outweighed by Growth in Mandatory Spending
"The federal deficit in fiscal year 2016 increased to $587 billion—up from $439 billion in fiscal year 2015. This marked a change from 6 years of declining deficits. The federal government’s receipts (taxes and other collections) increased by $18.0 billion (0.6 percent), from $3,248.7 billion to $3,266.7 billion, but this was outweighed by a $166.5 billion increase in spending from $3,687.6 billion to $3,854.1 billion."
Federal Debt Increased in Fiscal Year 2016
"Total debt rose to $19.7 trillion during fiscal year 2016, an increase of $1.4 trillion from fiscal year 2015. This change reflected an increase of intragovernmental debt from $5.1 trillion to $5.5 trillion and an increase in debt held by the public of a little over $1.0 trillion to $14.2 trillion."
Long-Term Fiscal Projections Show the Federal Government Is on an Unsustainable Fiscal Path
"The long-term fiscal projections in the federal government’s 2016 Financial Report and those prepared annually by CBO and GAO each use somewhat different assumptions, but their results are the same: absent policy changes, the federal government’s fiscal path is unsustainable."
Health Care Spending and Net Interest Are Key Drivers of Long-Term Federal Spending
"Federal health care spending on major health care programs increases from $993 billion in fiscal year 2016 to $2 trillion in fiscal year 2045 in 2016 dollars and net interest increases from $248 billion in fiscal year 2016 to $1.4 trillion in fiscal year 2045 in 2016 dollars." He also warned that “As of September 30, 2016, 58 percent of marketable Treasury securities held by the public were scheduled to mature and need to be refinanced in the next 4 years—potentially at higher interest rates.”
Social Security Also Poses Significant Financial Challenges
"Current projections indicate that the DI trust fund will deplete its assets by 2023 and then only be sufficient to pay 89 percent of scheduled benefits, while the OASI trust fund will deplete its assets by 2035 and only be sufficient to pay 77 percent of scheduled benefits."
Action Is Needed to Address an Unsustainable Fiscal Path
"CBO has noted that large and growing amounts of federal debt held by the public over the coming decades would have negative long-term consequences for the economy and would constrain future budget policy."
Debt Limit Is Not a Control on Debt: Alternative Approach to Managing Debt Is Needed
"As currently structured, the debt limit—a legal limit on the amount of federal debt that can be outstanding at one time—does not restrict Congress and the President’s ability to enact spending and revenue legislation that affects the level of debt; nor does it otherwise constrain fiscal policy. Rather, the debt limit is an after-the-fact measure: the spending and tax laws that result in debt have already been enacted."
Fiscal Risks Place Additional Pressure on the Federal Budget
"The Pension Benefit Guaranty Corporation’s (PBGC) financial future is uncertain because of long-term challenges related to PBGC’s governance and funding structure. PBGC’s liabilities exceeded its assets by over $79 billion as of the end of fiscal year 2016—an increase of over $3 billion from the end of fiscal year 2015 and of about $44 billion since 2013"
"In 2008, during the financial crisis, the federal government placed the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) under conservatorship and entered into preferred stock purchase agreements with these government-sponsored enterprises (GSE) to help ensure their financial stability. The agreements with the GSEs could affect the federal government’s financial position. At the end of fiscal year 2016, the federal government continued to report about $109 billion of investments in the GSEs, which is net of about $86 billion in valuation losses."
"The U.S. Postal Service (USPS) continues to be in a serious financial crisis as it has reached its borrowing limit of $15 billion and finished fiscal year 2016 with a reported net loss of $5.6 billion. USPS’s business model is not viable and cannot fund its current level of services, operations, and obligations. USPS’s liabilities exceeded its assets by $56 billion as of the end of fiscal year 2016 and USPS reported an additional $39.5 billion in unfunded liabilities at that time for its retiree health and pension funds. USPS reported a total unfunded liability for its retiree health and pension funds of $73.4 billion, $33.9 billion of which relates to required prefunding payments for postal retirees’ health benefits that have not been made and is included in the liabilities reported on its balance sheet."
Executive Agencies Have Opportunities to Contribute Toward Fiscal Sustainability
"In our prior work we have identified numerous actions for executive agencies to contribute toward a more sustainable fiscal future. It is important for agencies to act as stewards of federal resources, but executive actions alone cannot put the U.S. government on a sustainable fiscal path."
Reduce Improper Payments: Agencies Need to Curtail Billions in Improper Payments
"Improper payments—payments that should not have been made or that were made in an incorrect amount—have consistently been a government-wide issue. Since fiscal year 2003—when certain agencies were required by statute to begin reporting improper payments - cumulative improper payment estimates have totaled over $1.2 trillion. The improper payments annual estimate in fiscal year 2016, attributable to 112 programs across 22 agencies, was over $144 billion, up from almost $137 billion in fiscal year 2015 and almost $125 billion in fiscal year 2014."
Address the Persistent Tax Gap: Opportunities to Increase Revenues through Improved Collection Efforts
"The tax gap is the difference between taxes owed to the government and total taxes paid on time. According to the 2016 Financial Report, the estimated size of the annual gross tax gap is $458 billion. The tax gap arises when taxpayers, whether intentionally or inadvertently, fail to (1) accurately report tax liabilities on tax returns (underreporting), (2) pay taxes due from filed returns (underpayment), or (3) file a required tax return altogether or on time (nonfiling). Underreporting accounted for 84 percent of the tax gap across tax years 2008 to 2010."
Continue to Address Duplication, Overlap, and Fragmentation: Agencies Have the Potential to Achieve Billions in Financial Benefits for the Government
"In our six annual reports from 2011 through 2016, we presented over 200 areas and 642 actions for Congress or executive branch agencies to reduce, eliminate, or better manage fragmentation, overlap, or duplication; achieve cost savings; or enhance revenue. As of November 2016, about 40 percent of the actions were fully addressed, about 35 percent were partially addressed, and about 21 percent were not addressed. We estimate that tens of billions of dollars in additional financial benefits are possible by fully implementing our recommended actions."
Improve Information: Agencies Could Aid Fiscal Decision Making by Providing Improved Information on Programs and Fiscal Operations
"In many cases, agencies also need to take action to provide decision makers with additional or improved information on the performance and costs of policies or programs. In particular, decision-making could be improved by strengthened internal controls over financial reporting and increased attention to tax expenditures, and effective implementation of the Digital Accountability and Transparency Act of 2014 (DATA Act)."
We need to take action
Our national debt is more than all the physical cash, gold, silver and bitcoin in the world combined.
We are standing on the train tracks and the debt locomotive is barreling towards us. How did we get ourselves into this mess? Does the citizenry make irrational demands and only seek immediate gratification? Do we lack the qualities of humility and self-searching required to maintain a responsible course of action? Do we fail to plan thus ensuring that we plan to fail? Are we a group of self-centered people who are so obsessed with our individual circumstances and irrational demands that we “can’t see the forest for the trees?”
The first step in solving a problem is admitting you have one. I’d like to suggest that we all agree that we have a problem. Perhaps we should rethink our approach before we spend ourselves into a corner and can’t get out. Maybe we should stop being distracted by social media, news feeds, cable TV and the associated personalities and personal agendas and remember we are in this together.
The Liberty Song was first published in the Boston Gazette in July 1768. "Then join hand in hand, brave Americans all. By uniting we stand, by dividing we fall.”
Cooperation rather than competition is required. Let’s join together and deal with this issue while we still have time. We all need to accept our circumstances and understand that we will not like any possible solution we reach in order to save ourselves, for it shall require inconvenience, hardships and sacrifice. But it will be far more palatable than a solution hoisted upon us from our creditors. In other words, if we do nothing, the debt will solve us. We are subject to the same laws as nature, and nature does not take more than it needs.
If anyone disagrees with my assessment in regards to the urgency of this matter, I would appreciate you printing a copy of this article and reading it again when you are preparing your income taxes 13 years from now in the year 2030. If we do nothing, we will be a country with huge income inequality, social unrest, rampant poverty, limited options and 70% tax rates.