When President Obama attacked Congressional Republicans Wednesday over the federal budget, it made me wonder if he fully grasps the scope of the threat our nation faces from runaway debt.
Let’s look at the evidence. The U.S. federal debt now clocks in at more than $14 trillion and counting. The Congressional Budget Office (CBO) recently reported that the federal debt will exceed the entire U.S. economy within a decade under current policies. If government spending continues at the current frantic pace and U.S. Gross Domestic Product (GDP) continues to lag, the country could risk a fiscal crisis even sooner.
Standard & Poor’s (S&P), a major ratings service that assesses the quality of corporate and government debt (bonds), affirms the CBO projections. In April, S&P put U.S. government debt on “negative outlook” in a shot across the bow designed to get the attention of Washington leaders.
If U.S. debt were downgraded, it would immediately raise the cost of borrowing—making it even more difficult for the federal government to service its debt.
What does all this mean to the average Arkansan? Everything—the debt has significant implications for Arkansas’s economic future, since the state’s fortunes are tied directly to the larger U.S. and world economy.
The fact is that Washington D.C.’s tentacles reach into every county in Arkansas through programs that are fueled by hard-earned tax money. Moreover, a significant portion of Arkansas’s budget is spent on entitlements mandated by Washington, such as Medicaid spending.
A wake-up call
The CBO report and S&P rating ought to be a wake-up call for Congress: It’s time to rein in federal spending and balance the budget. We can argue about entitlements until the cows come home, but nothing will solve the problem until we reform entitlements and reassess all federal spending.
Attempting to restructure government programs always produces the inevitable charges of class warfare. But when the Titanic sank, it didn’t matter if you were a first or third-class passenger. Entitlement reform is essential to ensure that those most in need will continue to receive vital services. If we want to protect Social Security, it’s time to fix it. Likewise with Medicare and Medicaid. If not, all these programs will be lost.
The time for action is now
Partisan bickering and finger pointing, as the president brought to the table in his news conference, won’t do the job. If we don’t fix our budget problems, the bond market will do it for us. It will be painful either way—but far less painful if we do it on our own.
But raising taxes, as Obama and other Democrats hope to do, is not the solution. Lower taxes produce incentives to work, save, and invest—which in turn stimulate economic activity.
Only two things will fix the debt problem—reducing federal spending and growing the U.S. economy.
The United States now faces what may be the greatest threat to its existence since the American Revolution. Ronald Reagan said, “At home, our enemy is no longer Redcoats, but red ink.” In only the last few years, Washington has issued an astonishing amount of debt—more than $3 trillion since Obama’s inauguration alone, with trillions more in the pipeline once Obamacare and other federal spending kick in.
It’s as if the railroad bridge is out up ahead and Democrats want the train to go faster, while some Republicans only want to slow it down (e.g., a meager $60 billion in proposed cuts under GOP budget plans), and no one is willing to pull the emergency cord to stop the train. If we don’t take action, that train will plunge into the ravine, taking both Arkansas and the world economy along with it.
Hard working Americans must help Congress apply the brakes. More than anything else, it takes the will of the people to insist we “pull the emergency cord” and stop the runaway spending train before it’s too late.
Rick Calhoun is a Little Rock investment banker and a board member of the Advance Arkansas Institute.