Archive for the ‘2b. Too Much Debt and What To Do’ Category.

John Stossel – Puerto Rico Is A Model For Economic Recovery

John Stossel – Puerto Rico Is A Model For Economic Recovery

John Stossel explains in this short video how Governor Luis Fortuño of Puerto Rico showed political courage and reduced public spending and debt.

Here are the main points of the video:

Our politicians won’t stop spending. Puerto Rico was in the same boat as us. Businesses fled because of the high taxes. When the current governor, Luis Fortuño, was elected, there wasn’t enough money to pay the government workers. John Stossel interviews Fortuño in this video.

Fortuño cut spending and lowered taxes. In three years, they cut their deficit by 90%. The governor cut his own salary by 10%. He froze everyone else’s salaries. He severed government contracts. He merged agencies. He fired government workers. In three years he reduced the government headcount by 39,000. Some of the displaced workers started their own businesses. He helped them start businesses by streamlining the permit process. Instead of 28 permits to open a store, you go to one office and can do it online.

Businesses have returned and are expanding, such as Walmart and Coca Cola. They had two toll roads that were poorly maintained and lit. They provided a 40 year concession to a private company. Now the toll roads are properly maintained and functioning. They are going to do the same thing with their airports and the penitentiaries, even school construction and maintenance.

What is the lesson for us? Government spending can be cut. Puerto Rico did it. Private enterprise can be restored.

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Its Simple to Balance The Budget Without Higher Taxes

It’s Simple to Balance The Budget Without Higher Taxes

Politicians and interest groups claim higher taxes are necessary because it would be impossible to cut spending by enough to balance the budget. This Center for Freedom and Prosperity short video shows that these assertions are nonsense. The budget can be balanced very quickly by simply limiting the annual growth of federal spending

Here are the main points of the video:

What would it take to balance the budget without higher taxes? Deficits are caused by too much spending. According to the Congressional Budget Office, the Federal Government is spending $3.49 trillion and is collecting $2.14 trillion of tax revenues, resulting in a deficit of $1.34 trillion, as shown below. How should we balance the budget?

CBO Baseline Budget

First, we could limit the federal government to the activities authorized by the Constitution. Article 1, Section 8 provides a list, such as national defense, post offices, etc. Nowhere on the list is the Department of Education, Small Business Administration, National Endowment for the Arts, etc. Getting rid of these departments would immediately balance the budget.

For much of America’s history, the federal government only spent 3% of GDP, as the graph below depicts. If we did the same today, federal spending would be less than $450 billion.

Government Spending What the Founding Fathers Wanted and What We Have Today

However, this would not be palatable to most politicians. Therefore, let’s try another approach: just keep spending levels at the rate when Clinton left office, as depicted below.

Huge Surpluses If Bush Obama Continued Clinton Spending Levels

Allowing spending to grow at the rate of inflation and population growth would create a budget surplus in just two years. However, this also would not be palatable to politicians. So, let’s try another approach.

Let’s accept the current level of government spending and ask politicians to be responsible in the future. If spending is kept at the current level with a hard freeze, it would generate a surplus in 2016, as shown below. If we allowed the budget to grow at 2% per year, the budget will be balanced in 2020.

Balancing the Budget With Spending Restraint

Balancing the budget is not difficult. All we have to do is have restraint. We can balance the budget without raising taxes. How? We can balance the budget by limiting spending growth.

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Deficits Debts and Unfunded Liabilities The Consequences of Excessive Government Spending

Deficits, Debts and Unfunded Liabilities: The Consequences of Excessive Government Spending

This short video from the Center for Freedom and Prosperity reveals that deficits and debt are symptoms of the real problem: excessive government spending..

Here are the main points of the video:

Over the next 10 years the Congressional Budget Office estimates that the Federal Government will spend $3.6 trillion per year, growing to $5.7 trillion, as shown below:

Estimated Spending

Deficits are going to average $1 trillion per year, as shown below:

Estimated Deficits

The national debt (debt held by the public) will climb from $9 trillion to $20 trillion, as shown below:

Estimated debt

Although incomes are expected to climb, they will not keep pace with government spending. Debt as a percentage of GDP will rise from 50% to 90%, as shown below:

Debt as Share of GDP

Our debt burden in 2020 will be similar to what Greece has today, as shown below:

USA 2020 Debt vs Greece 2010 Debt

Publicly held debt is the amount the government has borrowed from private credit markets to finance public spending. Gross debt includes public debt plus amounts the Treasury department has borrowed from other agency accounts, such as the Social Security Trust Fund. The gross debt is $4.6 trillion higher than publicly held debt, as shown below.

Americas National debt

The extra $4.6 billion in the gross federal debt does not include unfunded liabilities of Social Security and Medicare.

Unfunded liabilities

The estimates of unfunded liabilities are between $50 – $100 trillion.

These numbers are much bigger than the national debt, as shown below.

The problem: The federal government is too big and spends too much. Social Security, Medicare and Medicaid are the big culprits. The lesson for us: we must restrain the growth of government.

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Deficits are Bad but the Real Problem is Spending

Deficits are Bad, but the Real Problem is Spending

Dr. Daniel Mitchell is worried about huge deficits and skyrocketing debt levels. This Center for Freedom and Prosperity Foundation video explains that government borrowing is excessive – and will get worse in coming decades. But, deficits and debt are merely the symptoms; the problem is government spending.

Here are the main points that Daniel Mitchell of the Cato Institute makes:

As you can see from the graph below, debt has grown in absolute terms through 2000, but economy has grown as well. Therefore, debt as a percentage of GDP was 115% during World War 2 but shrank to 38% in 2000

Federal borrowing can be compared to family borrowing. If a family borrows to start a business, pay for a child’s education or buy a house, the borrowing can be justified. But if the borrowing is used to fund a shopping binge, a week in Vegas, or an around-the-world cruise, borrowing cannot be justified.

Borrowing can be justified if done for things that generate long-term benefits. However, this is not the case for the Bush and Obama administrations. The Bush administration borrowed to spend on things such as No Child Left Behind, farm bills, Medicare prescription drugs, drug bill, transportation bills, and bank bailouts. The Obama administration borrowed to spend on things such as GM and Chrysler bailouts, bank bailouts, stimulus bill, Cash for Clunkers, and government run healthcare.

The Congressional Budget Office estimates that National Debt could skyrocket in the future as shown below.

This is just a symptom. The disease is government spending. From 23% of GDP today, it will rise to between 45 to 70% of GDP over the next 70 years as shown below.

What is the lesson for us? Raising taxes is not the answer. It merely replaces debt financed spending with tax financed spending. You don’t cure alcoholics by giving them more to drink. Borrowing diverts funds from private investment, and taxes penalize productive activity. Both slow growth and contribute to stagnant wages. We must reduce government spending.

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Americas Looming Fiscal Collapse

America’s Looming Fiscal Collapse

Blaise Ingoglia, founder of Government Gone Wild!, discloses that If we pay for Social Security, Medicare, Medicaid, government pensions and interest, we could not pay for anything else, layoff every government worker and close the military and still not balance the budget. Watch this video by Government Gone Wild!,.

Here are the points that Ingoglia makes:

Is it any secret that Congress’ favorability rating is so low (only 13% of the population think Congress is doing a good job). We as a nation pay more in taxes than we do on food, clothing, and shelter combined. So you should say, “NO” when you hear politicians say we need to raise more revenue. You should say to politicians, “STOP SPENDING AND MAKING PROMISES YOU CAN’T KEEP”

Congress is borrowing money just to make the interest payments. Over the next 10 years we will be paying $6 trillion in interest payments alone. That is enough to pay off the vast majority of home mortgages in the U.S. We pay billions of dollars in interest to countries that sponsor terrorism.

If we took all of the gold that the U.S. government owns and sold it at today’s record prices, we could only pay down our debt by 3%. The amount we owe for entitlements (Social Security, Medicare, Medicaid) is even more shocking. In the year 2000, we owed $20.4 trillion. In 2012 we owe $70.4 trillion. This exceeds the net worth of all of the citizens, small businesses, and large corporations combined. This debt grows 3.5 faster than our national debt grows. There is not enough money on the planet to pay for politicians promises.

Unless we limit our spending, our country is heading for a financial collapse.

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Brother Can You Spare A Trillion Government Gone Wild

Brother, Can You Spare A Trillion? Government Gone Wild!

This week’s lesson will provide a short video each day explaining why our federal government has too much debt.

Blaise Ingoglia, founder of Government Gone Wild!, discloses that the government spent $413 billion in interest in 2010, which is more than we spend on Departments of Health and Human Services, Transportation, Energy, Veterans Affairs, Housing and Urban Development, Justice, Homeland Security, Agriculture, Commerce, Treasury, Labor, and Small Business Administration combined. Since 1988, Congress has spent $8 trillion in interest payments alone.

Here are the main points that Ingoglia makes:

$8 trillion is enough money to give a Lotus dream car to every tax payer in the country.

According the the Congressional Budget Office, by the year 2021 (ten years away), our interest payments will reach $1.1 trillion per YEAR. Which is 1.5 times more than what we now spend on national defense.

By the year 2046, every dime of tax revenue received by the federal government will be spent on interest payments alone. There will be not one dollar left for anything else.

How hard will it be to pay off this debt? If Congress started today, did not spend a nickel on anything else, and made payments of $100 million a day, it would take 389 years to pay off the national debt

When politicians talk about reducing the deficit, they are NOT talking about reducing the debt. The debt and interest on the debt, could be the downfall of America!

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