Understanding the Debt Problem - Explained by David M. Walker

what I'd like to do is to take a few minutes to provide you with the facts about where we've been where we are and where the US is headed both financially and fiscally this chart represents federal spending adjusted for inflation since 1912 in 1912 the US government was 2% of the u.s. economy last year it was 23% of the economy so the federal government is almost 12 times bigger today as a percentage of the economy that it was in 1912 and revenues have not kept up with expenses especially recently this shows years with Republican presidents in red and democratic presidents in blue as you can see spending is a bipartisan problem and it's been particularly out of control since 2003 since 2003 we've had presidents from both major political parties and the Congress has been controlled by both major political parties the truth is there's not a party of fiscal responsibility there are people who are there's just not enough of them this is how we spent money last year in Washington DC number one is social security including retirement disability and survivors insurance number two is health care cost for Medicare and Medicaid and number three is national defense note that contrary to popular belief international and foreign affairs was only about 1.5 percent of the budget in 1912 the Congress controlled 97 percent of federal spending the only thing that it did not control was interest expense last year it only controlled 36 percent of that part which the so-called sequester is forcing downward it includes all of the Express and enumerated responsibilities of the federal government under the Constitution all investments in our future and all investments in young people that approach is not a description for Prosperity if you use honest and comparable accounting to compare us to Europe you would add federal state and local debt as a percentage of the economy by doing so you will find there is only one country in Europe that has a higher percentage of debt to GDP than us today and that's Greece and we don't want to follow Greece's lead so who owns our public debt China and Japan are the largest foreign holders together with OPEC nations but the largest single holder is the Federal Reserve the Federal Reserve purchased about 80 percent of new US debt in 2011 and over a third of new debt in 2012 the Federal Reserve is also the only major player purchasing long-term US debt stated differently we are self dealing in our own debt and for every 1% future increase in interest rates on federal debt interest costs will go up over a hundred and sixty billion dollars a year and what do you get for interest as we say in the south shinola nothing now you're probably familiar with the National Debt Clock it's currently over 16 trillion dollars up from five point six trillion in 2000 but it lowballs the problem when you consider unfunded civilian and military pensions and retiree health care unfunded Social Security and Medicare promises and various other commitments contingencies and these numbers are all there in the official financial statements of the US government and when you then use a simple principle called math in the year 2000 the federal sinkhole told twenty point four trillion dollars at the end of last year it was up to about 70 trillion dollars and going up about 8.2 million a minute fourteen point four billion a day eighty billion dollars a week and over four trillion dollars a year so the problem is a lot bigger than the politicians admit the sinkhole is getting deeper very rapidly by doing nothing and Washington has become very adept at doing nothing hopefully this will give us a greater sense of urgency to act even more than the National Debt Clock importantly this 70 trillion dollar number could be reduced by tens of trillions of dollars even if the reforms are phased in over time because it's a discounted present value of future cash flows therefore the sooner we make real changes the better but what if we don't act this is what the future looks like for our annual budget if we go back to taxing and historical levels of 18% of our economy which were expected return to by 2014 if we don't reform Social Security Medicare Medicaid if we charge the difference to the credit card and if interest rates don't go out of sight the fastest-growing expense interest for which we get shinola the second fastest-growing expenses health care which we have to do something about or we can't solve the problem and the longer we wait the worse the problem gets so it's prudent to act sooner rather than later because time is working against us if we don't fix these problems here's what happens to debt as a percentage of the economy only one time in the history of the United States have we had public debt over 100 percent of the economy and that was World War two but we got something for World War two we defeated the Axis powers we saved the free world and after World War two we were over 50% of the global economy the dollar was as good as gold and we had 16 persons working for every person retired and Social Security the u.s. grew dramatically and we did not pay off a dime of debt but public debt as a percentage of the economy went down to 26 point one percent in 1980 but we lost financial control in 2003 and now we're headed for third world nations status on debt as a percentage of the economy if we don't change direction pretty quick but reducing debt as a percentage of our economy will be harder to do than after World War two not only is spending higher than tax revenues now but spending on government retirement programs or clearly going to grow Medicare Part A the hospital insurance program has been adding the deficits for a number of years in a row now Social Security didn't add a dime to the deficit in recent years until 2010 but now is increasingly paying out more than it takes in and the cash flow deficits from both these programs are going to grow rapidly in the coming years why because there are 10,000 people a day eligible to retire on Social Security Medicare there the so-called baby boomers and I'm one of them and eventually I'll be eligible 10,000 new retirees a day for the next 17 years means that government will have to start paying more benefits but as people exit the workforce the government will get less revenue so it's a double whammy that has to be dealt with a lot of people think that they've paid for their Medicare benefits because we pay payroll taxes for Part A Hospital insurance and once we retire we pay premiums for Part D and Part B the truth is the typical person gets three hundred and fifteen percent return on their Medicare payroll taxes and premiums in part because 95% of people who voluntarily sign up for Medicare Part B and D which are outpatient physician and prescription drugs get a 75% taxpayer subsidy irrespective of their income and wealth so we are subsidizing people who are very well-off and on health care we spend over double per person what other industrialized countries spend and we get below average results on life expectancy on obesity and a variety of other societal measures when you spend double per person but you get below average results the answer is not to throw more money at that system the answer is to reform the system dealing with incentives transparency and accountability and by the way we have the same problem with K through 12 education we spend double per person we get below average societal results now what about defense we spend as much as the next roughly 20 nations combined on defense and most of those are allies what about tax burdens people argue that we ran over tax Society I guess that depends on where you sit but the fact is if you look at federal state and local taxes as a percentage of the economy we're lower than most major industrialized nations only Japan and Mexico are lower than we are if you look at the tax code we lose over one trillion dollars a year to deductions exemptions credits and exclusion number one on the list of special tax preferences for individuals is that people don't pay income tax on a poorer provided and paid healthcare number two the mortgage interest deduction number three the fact that until this year people who made all their income on dividends and capital gains very wealthy people like Warren Buffett paid only 15% on that income and they don't pay payroll taxes on that income either the Earned Income Tax Credit gives a rebate to the working poor which not only reduces their taxes but in many cases it gives them a subsidy check twenty percent of Americans get a rebate for more than they paid in in income taxes and then charitable contributions are number five we have two problems on income taxes now this is just income taxes as you know over 60% of Americans pay more in payroll taxes than in income taxes over 40% of people who file tax returns at the federal level pay Zippo in income tax and about 20% get absolute rebates now obviously to the extent that you have a certain level of income that some function the poverty level you can justify their not having to pay income taxes because they are paying other taxes like payroll taxes at the same point in time when income tax is fund all or substantially all of the constitutional roles of the federal government it is a dangerous disconnect to have over 40 percent not paying any income tax on the other hand at the top the people making over a million dollars a year they're estimated to have an effective income tax rate of under 21 percent in 2012 you say how can that be the top tax rate is 39% that's because they paid only 15% for dividend and long-term capital gains which has now been raised to 20% for many people and about 23.8 percent for people with very high investment income so the truth is we have to get more people paying something under a more progressive tax system but we also have to limit special tax preferences for the well-off but how you do that matters I would respectfully suggest that you don't want to build on our current complex non-competitive and inadequate tax system we need comprehensive tax reform that makes the system fair more competitive and raises more revenue and in closing this is not just a financial issue this is not just an economic issue this is an ethical and a moral issue these are my three grandkids and my wife we are mortgaging the future of our kids and grandkids at record rates and we are reducing relevants in their future at a time when they're going to face a lot tougher competition in an increasingly interconnected and interdependent global marketplace that is irresponsible that is unethical that is immoral and it must stop my grandkids are 7 10 and 11 so they obviously don't have a vote they don't have a voice I am their voice we can we must and I hope that we will come together to solve this problem in an equitable way let's work together to do it this year you

Channel: KeepingAmericaGreat.org

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Keywords: Economy, Social Security Debate In The United States, Fiscal Issues, Tax Issue, Economics, Federal Deficit, Medicaid, Deficits, Fiscal Policy, United States, American, Government Debt, Government Debt Taxonomy Subject, Debt Crisis, Debt, David Walker, Health Care Issue, Deficit

Id: hsUdK70Jtmc

Length: 13min 29sec (809 seconds)

Published: Mon Sep 16 2013