In February — three years after Barack Obama became president, and 32 months after the Great Recession officially ended — the United States recorded its largest monthly deficit ever: $232 billion. So, last month we borrowed the equivalent of Portugal.
The relatively good news is that February usually features low revenues and high spending. The country is not actually on pace for a $2.8 trillion shortfall this year. Whew!
The decidedly bad news: Washington still is well on its way toward a fourth straight year of spending $1 trillion more than it takes in.
That word, “trillion,” has lost some of its shock value during the past three years. But if you have children, grandchildren or just expectations of living more than another 10 years or so, you must know runaway red ink is the most important issue we face today. And, with apologies to each Republican telling the country that putting him in the White House is the key to America’s future, any steps toward solving this problem must begin in Congress.
Which brings us to the best news so far. In between the Romney campaign’s giving an unexpected boost to Etch-a-Sketch and the Broncos’ trading Tim Tebow to the New York Jets this past week, the most consequential member of Congress tweaked his plan for backing away from the fiscal abyss.
Paul Ryan, the House budget chief from Wisconsin, laid out his revised Path to Prosperity. The plan may or may not be politically practical, but it is vitally important in illustrating the kind of choices necessary to balance the federal budget.
He does this by recognizing two realities Obama still denies, if we are to judge by the president’s plans.
First: Tax revenues during the past 60 years, regardless of tax rates or loopholes, have averaged 18 percent of gross domestic product. So, if we are serious about balancing the budget, we cannot keep spending above 22 percent of GDP, as Obama proposes to do indefinitely. We have to get it to 18 percent or less.
Ryan’s plan does this, in part by holding down spending on Medicare and Medicaid. The program for retirees would be reined in by helping seniors pay for competing, private insurance plans rather than having the government insure them itself. Medicaid would be effectively handed over to the states, which would get less money from Washington but also much more freedom to shape their health plans for the poor.
But he also does it by cutting spending for defense, for education — for everything besides health care and Social Security — almost in half within 10 years. Would that be a shock to the federal system? Certainly. But, just as certainly, it represents the scale of change required to bring Washington’s spending under control.
The second fact is that we will escape our budget hole only by growing the economy. Among other things, that prevents absolute levels of spending from plummeting even as they shrink as a share of the economy, making cuts more politically palatable.
He proposes to do this with a complete overhaul of the tax code. Among other things, the current six income-tax brackets would collapse to just two: 10 percent and 25 percent. The falling rates would be offset by removing the litany of loopholes and carve-outs that favor the well-connected and distort decision-making. Ditto for corporate loopholes, as that rate fell to 25 percent, too.
There is no greater issue for the country than getting control of Uncle Sam’s finances, and no starker contrast with what Obama proposes to do if re-elected.
– By Kyle Wingfield