Monday, February 28, 2011

America's debt problem at a glance

Click to enlarge

Business Insider: This is the "income statement" of the United States in 2010.  "Revenue" is on the left.  "Expenses" are on the right.
Note a few things...
First, "Revenue" is tiny relative to "Expenses."
Second, most of the expense is entitlement programs, not defense, education, or any of the other line items that most budget crusaders normally howl about.
Third, as horrifying as these charts are, they don't even show the trends of these two pies: The "expense" pie is growing like gangbusters, driven by the explosive growth of the entitlement programs that no one in government even has the balls to talk about. "Revenue" is barely growing at all.
This is the sad state of America;s economic affairs.  I am sure our friends on the left will look at this chart and say we can easily balance the equation by raising taxes, especially corporate taxes which only account for 9% of the government's revenue.  But here is the rub, when it come to raising taxes the law of physics apply; for every action there is an equal yet opposite reaction. Raise the corporate tax rate and corporations will do one of two things a) pass on the tax to consumers with higher prices or b) flee to countries with lower tax rates (and take their jobs with them). Try raising personal income tax and you end up with less revenue in other areas (e.g. cigarette and gas taxes) because individuals have less money to spend.  Therefore, cutting spending becomes the logical thing to do.

From the chart on the right it is clear that entitlements is where the real money is.  Defense spending at 20% is nothing when compared to the combined 58% of entitlements.  Add to the fact that entitlement are growing at a much more rapid rate than defense, entitlements becomes the focal point for spending cuts.  The problem is that politicians have made entitlements into a sacred cow.  The other problem is that too many politicians (both right and left) have used growing entitlements as an election tool. By promising all sorts of "free" goodies, like "free" healthcare for kids or "free" prescription drugs for seniors, politicians have been exasperating the problem.

What is needed starting 2012 and forward, are politicians who have the guts to tell Americans that the "free" ride is over.  We need politicians who are adult enough to lay before us the stark choices to bring our financial house in order and that means a) start taxing more people (bye-bye progressive tax, hello flat tax), b) cut entitlements (good bye free rides) or c). a combination of both.

I invite you to see where Business Insider got the chart from it is Mary Meeker's presentation of America's financial statements called USA, Inc.


Just a conservative girl said...

There is waste in defense that needs to be addressed. We spend billions on weapons that we don't use or sometimes the military doesn't really want.

Of course it won't solve the problem, but nothing should be off the table.

Mr. Mcgranor said...

Funding other nations--is that under non-defense discretionary?

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