There is only one solution to the present American economic malaise: Economic growth fueled by lower tax rates and reduced government spending. Continuing the Bush/Obama status quo path of ever-increasing spending without reforming government pensions and entitlements will create an American “lost decade” or two.
The American publically-held national debt stands at $11 trillion. The unfunded liabilities of the United States — legally committed spending that exceeds expected tax revenues -- stand at $86.8 trillion.
The projected deficit for 2013 is $1.1 trillion. Over the next four years Obama plans to add a total of $4 trillion to the national debt bringing the ratio of Gross Debt to GDP from 69.7 percent when he was elected to 106 percent when he leaves office.
In the debt ceiling fight in August 2011 Congress voted to cut $2.5 trillion in Obama’s projected spending over the next ten years. Obama is now fighting against implementing those legislated commitments. Obama demanded massive tax hikes in the “fiscal cliff” budget negotiations and no real spending restraint.
Spending under current policy is projected to rise from 23.2 percent of GDP in 2012 to 39.3 percent of GDP in 2050. That is Obama’s plan for the future.
The Republican alternative is the Paul Ryan budget. It focuses on growth through lower tax rates and reduced spending through reforming entitlement.
The Ryan plan reforms include no net tax hikes. It reforms entitlement spending on pensions by moving from defined benefit to defined contribution plans such as the private sector has done over the last generation. It reduces government employment through attrition rather than layoffs. It reforms the large means-tested welfare programs such as Food Stamps and Medicaid by “block granting” the funds to the states and eliminating the “one size fits all” present government programs. This is exactly what Bill Clinton did with welfare. This was the singular success of the Clinton administration.
Medicare, the government health program for those over 65, will be reformed along the lines of the bipartisan commission established by then president Bill Clinton and since endorsed by several prominent Democrats. The plan counts on competition keeping health care prices low rather than government-imposed wage and price controls.
The Ryan plan, reforming entitlements and limiting domestic discretionary spending, will reduce government spending over the next decade by $6 trillion but more importantly these reforms will eliminate the unfunded liabilities of the federal government and take the pay-as-you-go “Ponzi scheme” financing to fully funded, sustainable programs that can exist in the long run. (Medicare actuaries estimate the program will go bankrupt in 2016.)
On taxes, the Ryan plan would set a top rate of 25 percent for both individuals and businesses and move to a territorial tax system rather than America’s unique system of worldwide taxes. The success of the Coolidge, Kennedy and Reagan years show that such lower tax rates would create strong economic growth further reducing debt as a percentage of GDP. If the American economy grew for a decade at Reagan growth rates rather than Obama rates, that is 4 percent rather than 2 percent each year, the federal government would gain $5 trillion in greater revenue more than eliminating Obama’s debt of his first term.
If the Ryan plan were enacted today, federal spending would fall to 16 percent of GDP in 2050 and federal taxation would consume 18-19 percent of GDP which rapidly pays down the national debt.
The two paths are rather very different. Under the Democratic future, federal spending rises to 39.3 percent in 2050 while it is only 16 percent under the Republican future as written down in the Ryan budget.
Grover Norquist is president of Americans for Tax Reform. Follow him on Twitter @GroverNorquist.