When David speaks to his clients or the public, he’s often talking about the nation’s fiscal crisis, the national debt, and unfunded obligations.
There are really only four ways to resolve our fiscal crisis. You decide what you think the most likely solution will be.
The first thing we could do to prevent our country from going over a fiscal cliff is to cut expenses. We know that the real gushers in the fiscal budget are things that Congress doesn’t even have control over.
Congress controls around 30% of the national budget. These are things that they wouldn’t have to pass a law to change.
The remaining 70%, things like interest on the national debt, Medicare, Medicaid, and Social Security, are laws. Congress would have to pass a law to make any changes at all which is pretty unlikely given they would need to control the House and the Presidency.
The real issue is Medicare, which is growing at least 6% per year. Much of the expense for that program is not on our radar yet. We would have to find a way to pass a law that requires people who already can’t afford retirement to find a way to pay for their own healthcare later in life.
The second option is to borrow more money. This also presupposes that there are countries that are willing to loan us money.
We are on a path where we will get to a point where all of the money flowing into the US Treasury will go to pay only for the interest on all of our debt.
If we can only pay the interest on our debt, other countries will not likely be willing to loan us money. This is what is known as a sovereign debt crisis.
The third option is to print more money. David’s critics believe that we will just start printing and return to 70’s era inflation. They forget that Social Security is pegged to the CPI, which means that as inflation rises so does Social Security.
Medicare is affected by inflation as well. You can’t fix Medicare by inflating your way out of this.
David Walker says that we will have to double tax rates in order to keep our country solvent.
There is currently ground swell support for higher tax rates. For those that thought that we would never return to the tax rates of the past, you have to understand that these programs have to be paid for somehow.
We know that the tax rate has been somewhat of a slush fund for Congress in the past. When there’s a war or extraordinary circumstances, they raise taxes.
As the highest marginal tax bracket goes up, all of the other tax brackets tend to ratchet up right along with it.
You have to basically understand that there are really only four options: you can cut back on expenses, borrow more money, print more money, or raise taxes.
It’s much easier to raise taxes than it is to get rid of a government program.