A deficit occurs when our federal government spends more in a year than it takes in. Debt is the accumulation of deficits over time. Our national debt, as of July 13, 2012, was $15.9 trillion, up $1.6 trillion from June 1, 2011. It is likely to reach the limit of $16.4 trillion by December.
Public debt is the amount of dollars borrowed from banks, corporations, governments and individuals that must be paid back when mature. Most pundits compare the $15.5 trillion GDP (the amount of goods and services produced annually) to the public debt of $11 trillion, which is 71 percent. One widely held opinion is that an economy is in trouble when debt approaches 100 percent of GDP. This percentage leaps up to 116 percent if a more out-in-the-open calculation of adding intergovernmental debt and adjusting GDP for inflation is used.
Business profits are profit-driven; expenses are limited in whatever way possible to achieve profits. Government budgets are expense-driven, with an emphasis on spending the entire budget to justify a higher amount for the new budget. The U.S. Senate, under Harry Reid, has not approved nor even proposed a budget going on three years. The budgeting process is so poisoned by political ideology that spending approval occurs under continuing resolutions. It is a piece-meal way to fund government agencies and hinders thrift and productivity. Meanwhile, revenues for 2012 might come in around $2.5 trillion, compared to a White House budget of $3.699 trillion in spending—a $33 percent shortfall in revenue.
We are fast approaching an economic calamity with no firm plan from either the White House or Congress on how to deal with the huge budget deficit. The president’s 2013 budget is one example. The Office of Management and Budget projects outlays of $3.8 trillion, increasing to $4.3 trillion in 2016—13 percent over three years. Receipts are projected to grow from the 2011 amount of $2.2 trillion to $3.7 trillion in 2016—up a whopping 68 percent, or an average of $300 billion per year. The average yearly revenue increase of the Clinton years was $51 billion.
Job creation is the best way to reverse the decline. A strong job market boosts tax revenues and trims spending for food stamps, unemployment, Medicaid and so forth.
The best way to increase tax revenues is through an expanding and thriving economy. Regrettably, there are barriers standing in the way.
A first step would be to reduce uncertainty, which is the job of Congress and the president. Most businesses have only a vague notion of what labor, energy and regulation costs might add. The Patient Protection and Affordable Care Act (commonly known as ObamaCare), upheld this summer by the U.S. Supreme Court, could be rife with legal issues. A law that has some 2,300 pages (a 10-inch-thick document) seems destined to provide legal work for attorneys for years to come.
Educating people is essential to a thriving economy. The success of our republic and the well-being of our society are tied to the education level of our population. A country plagued with poverty is one with poorly educated people, and is governed under a socialist, communist or dictatorship rule.