The economic and fiscal crisis, in addition to policy uncertainty, is still causing a weak recovery from the Great Recession. Unemployment still remains high and the economy is plagued by the albatross of our dangerous, escalating, national debt. More Americans are also becoming more dependent upon government programs, and it is estimated that about 40 percent of the population receives some form of government assistance. As the 2012 election demonstrated, the nation remains politically and culturally divided over how to solve issues of government spending, paying down the debt, and reforming entitlement programs. It is certain that uncertainty will continue as policymakers delay implementing sound public policy ideas that consist of spending and tax reform.
At the heart of the fiscal crisis is the national debt, which is over $16 trillion. In addition, the federal government is running annual-trillion dollar deficits and still operating without a budget. President Barack Obama has already added over $5 trillion to the national debt. The negotiated fiscal cliff compromise failed to address the serious need for spending and tax reform. It is clear that the federal government is suffering from a spending problem, rather than a revenue problem.
The debate over the $85 billion sequester cuts is a prime example. President Obama and Democrats argue that the sequester cuts will result in painful consequences and higher unemployment, but the fact remains that the $85 billion is a small portion of the entire federal spending. Michael Tanner, a Senior Fellow at the Cato Institute, wrote that the “federal government will spend at least $3.62 trillion, an increase of $92 billion from last year.” “Of that amount we will borrow $941 billion, or 26 percent,” noted Tanner. A major factor that is driving the debt is not only excess government spending, but also the growing costs of entitlement programs such as Social Security, Medicare, and Medicaid.
Slow economic growth, high unemployment, and the debt crisis are all driven by the same failed policies being advanced by President Obama. In addition, the Patient Protection and Affordable Care Act along with increased regulatory activity on the economy will add to the continual uncertainty. The Affordable Care Act is projected to add trillions to the unfunded liabilities of the federal government.
It is clear that the current uncontrolled levels of government spending cannot continue. The $16 trillion national debt and deficits are not only harming the economy, but also threaten the value of the dollar. The solution to the problem requires policymakers to begin to cut government spending and reform the tax structure. Both spending and tax reductions would not only begin the process of solving our fiscal crisis, but also unleash the private-sector of the economy which in turn will lead to economic growth and job creation.
The process of cutting government spending will not be easy, as demonstrated by the fiscal cliff negotiations and the recent debate over sequestration, but the fact is clear that the nation cannot continue this reckless spending spree. The fiscal crisis is a serious threat to the survival of the Republic.
John Hendrickson is a Research Analyst with the Public Interest Institute in Mount Pleasant, IA.