First, if you asked me 10 years ago if I would ever even think about a VAT in the US, I would’ve said, “Not no, but hell no. Double hell no!” We were still at a point in 2006 where we could have brought the budget under control, got our hands around the entitlement problems, flatlined spending along the lines of Clinton/Gingrich, and dealt with both the deficit and the debt.
However, that is not what we chose to do. And now we find ourselves between the devil and the deep blue sea. The devil is the national debt, and the deep blue sea is the crisis that we are sailing into if we don’t figure out what to do about that debt. The chart below goes through 2014, and if it were extended to the end of this year it would show national debt at $20 trillion.
At some point, Glen, debt in and of itself is a drag on growth relative to income. The economic literature is pretty consistent on that. A debt-to-GDP ratio of 40% is not an issue; but US government entities owe a total of $23 trillion, or over 120% of debt-to-GDP – and that amount is rising every year. We look a lot more like Italy than any of us would care to contemplate.
While I agree that a VAT is a drag on growth, that is not the problem in Europe. It is their debt, plus their sclerotic regulatory systems and ungodly heaps of rules and regulations that are destroying jobs and inhibiting new small businesses from starting.
As I keep preaching, when (not if) we have the next recession, the will balloon to well over $1.5 trillion and probably closer to $2 trillion. It won’t take long to get to $ trillion, and then we’ll be spending $600–$800 billion of taxpayers’ money just to pay the interest at what I think will be normal rates. Now, if you prefer to use the CBO’s projected interest rates, then add another $300 billion a year, pushing total interest outlays to $1 trillion a year. (The CBO is assuming a much stronger economy than I would at that level of debt. If I am wrong, then the interest payments will be much higher…)
We have amassed well over $120 trillion in unfunded liabilities, and if we don’t get our entitlement spending under control, the debt is only going to get worse – much worse. That reality brings up the next, generalized question.
You Got to Know When to Fold ’Em
John, you know the only real way to solve the crisis is to cut spending across the board. Cut everything. You have to slash entitlements and defense spending and get rid of whole government departments. We have to learn to live within our budget. Stop being part of the mainstream and deal with the real problem: too much government spending.
(And there was also the Libertarian variation on that theme: Starve the beast; don’t feed it.
To everyone who voiced sentiments along those lines: I get it. I agree with you. If it were in my power, I would do it. But it’s not.