Thursday, July 7, 2011

Who Is Right: About What Is The Biggest Driver Of Our Deficit: Obama or The CBO?

During President Obama's twitter townhall meeting yesterday, he made an astounding claim
"I will say that today, welfare payments are not the big driver of our deficit or our debt. There are work obligations attached to welfare," President Obama said at his Twitter Town Hall.
Yet, the Congressional Budget Office, known as the CBO, explicitly states in its findings that entitlement programs are the biggest drivers of our national debt: 
The retirement of the baby-boom generation is a key factor in the nation’s long-term fiscal outlook. It portends a significant and sustained increase in the share of the population receiving benefits from Social Security, Medicare, and Medicaid. Moreover, under current law, per capita spending for health care is likely to continue rising faster than spending per person on other goods and services.
As a result, if current laws remained in place, the federal government’s spending on Social Security and the major mandatory health care programs (Medicare, Medicaid, the Children’s Health Insurance Program, and the health insurance subsidies that will be provided through insurance exchanges) is projected to grow from roughly 10 percent of GDP today to about 15 percent of GDP 25 years from now. (By comparison, spending on all of the federal government’s programs and activities, excluding interest payments on debt, has averaged about 18.5 percent of GDP over the past 40 years.) That combined increase of roughly 5 percentage points of GDP is equivalent to about $750 billion today.
Despite the overwhelming evidence that entitlement programs are, indeed, the single largest driver of the U.S. Debts, politicians like Obama are wrong in continuing to ignore the truth by proposing cuts in areas that could use budget cuts but really won't make real dent in reducing the deficit. 
For example, there are rumors that defense and national security spending could face a $700 Billion cut. While we can debate on whether or not making drastic cuts is a good, necessary or wise idea, there is no dispute that these cuts will not have any significant or substantial impact on shrinking the national debt. Those who are seeking reductions in defense spending as a compromise to the debt ceiling debate are foolish and reckless. Making these cuts while in the middle of fighting terrorism around the globe will not make our country safer nor will it fix our deficit problem. 
Another foolish compromise that some politicians are willing to make is to raise taxes in exchange for tough austerity measures to reduce the debt. It boggles my mind that they are willing to raise taxes at a time of high unemployment when most people don't have jobs which makes it possible for government to collect revenue. Moreover, only half of America pays taxes which means that taxes will go up for 50% of Americans that do pay, especially the wealthy. Yet, it won't change the amount that the government collects in revenue. Tax reciepts have traditionally remained around 19% to 20% of  our GDP
Finally, Senator Marco Rubio makes a great speech about how raising taxes will not create jobs: 
Here's the bottom line: These tax increases they're talking about. These so-called revenue enhancers, they don't solve the problem. So what do we do then? Because clearly we have to do two things.

"One, we have to hold the line on spending, if you keep digging yourself in the hole, the hole is going to bury you, the other thing is how do you start generating revenue for government so you can start paying down this debt? That’s what the debate should be about.

“We already know these taxes don't work. Here is what I suggest works in a balanced approach, using the President's terminology. Let's stop talking about new taxes and start talking about creating new taxpayers, which basically means jobs.

“Here in Washington, this debt is the number-one issue on everyone's mind, and rightfully so. It is a major issue. But everywhere else in the real world, the number one issue on everyone's minds is jobs. …

“We don't need new taxes. We need new taxpayers, people that are gainfully employed, making money and paying into the tax system. Then we need a government that has the discipline to take that additional revenue and use it to pay down the debt and never grow it again. That's what we should be focused on, and that's what we're not focused on.

“You look at all these taxes being proposed, and here's what I say. I say we should analyze every single one of them through the lens of job creation, issue number one in America. I want to know which one of these taxes they're proposing will create jobs. I want to know how many jobs are going to be created by the plane tax. How many jobs are going to be created by the oil company tax I heard so much about. How many jobs are created by going after the millionaires and billionaires the president talks about? I want to know: How many jobs do they create?
So while our political leaders in Washington D.C. plan to "go big" on budget cuts, they're going to do it with bad and failed solutions that will have no impact on reducing the national debt. Cutting the military and intelligence budget isn't going to shrink the debt. Raising taxes isn't going work either. Both will have a minimal impact on reducing the debt.
The only thing that will eliminate the national debt is reforming and/or cutting entitlement programs. Although Obama doesn't believe that entitlements are the single largest driver of the U.S. Debt, he is on the right track in proposing substantial reforms to our welfare programs.
In fact, entitlement reforms should be the only topic our politicians should be talking about in their discussions over raising the debt ceiling. Once they agree to these reforms and actually follow through on their agreements, then we can talk about making changes/reductions to the budgets of other government agencies and tinkering with the tax code.

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