According to the latest data, the total U.S. public-debt-to-GDP ratio is 60 percent.
In dollar terms, the U.S. public debt is $13.5 trillion. GDP is defined as “the total monetary value of all goods and services produced domestically by a country.” This means that for all the goods and services produced, we have nearly one dollar of debt.
This is the highest number since right after World War II, when wartime spending exceeded revenue. However, according to current projections, the United States will reach that ratio very quickly.
According to CBO projections, our debt-to-GDP ratio will reach 90 percent in 2020. To put things in context, Greece currently is only slightly above the level that we are projected to reach in less than 10 years.
Clearly, something must be done to address this urgent situation.
There are three ways that the government can reduce that number: borrow, tax and reduce spending.
Many Democrats favor taxes on the rich as the best way to reduce the deficit. The problem is that our debt is much higher than most people think.
Boston University economics professor Laurence Kotlikoff calculates the “real debt” of our nation closer to $200 trillion. Kotlikoff also is a respected research associate at the U.S. National Bureau of Economic Research and author of 14 books. His estimate would put the public-debt-to-GDP ratio closer to 840 percent, a level we have never come close to historically.
The reasons the numbers are so much higher than the government admits is because, according to Kotlikoff, “they do not count off-budget obligations such as required spending for Social Security and Medicare, whose programs represent a balloon payment for the government as more Americans retire and collect benefits.”
Kotlikoff is right. According to the CBO, at current projections, Medicare, Social Security and Medicaid will cause the annual deficit to reach three times total revenue by 2050.
Everyone knows the United States is in bad fiscal shape. So why am I writing this?
The reason is to demonstrate that there is no way that raising taxes could balance a budget without being accompanied by serious spending cuts. Even if the government taxed everyone at 100 percent of their income, it is likely it will never cover the amount of money the government is projected to be spending in the coming decades.
This is the reality that our politicians, especially the Democrats, don’t seem to understand. To address the fiscal problems facing the nation, the key is spending cuts — and not tax increases.
Borrowing isn’t a solution either, since this will drive up rates on government-issued debt and further increase our debt load.
Taxes and borrowing have to be ruled out as the main approach to balance the budget.
Instead, it is time for our politicians to address the real problem and institute serious reform of Medicare, Social Security and Medicaid.
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