Tuesday, February 26, 2013

Morgan Griffith on the U.S. Budget, Part II

From Congressman Morgan Griffith:

"Numbers for nerds, and other Americans who care – Part II
Last week in Part I, we outlined America’s spending problem using numbers based on official data collected from the U.S. government. These numbers were provided by David Walker, a former U.S. Comptroller General. He presented the problem as if the U.S. was a household with an annual income of $50,502 (the median income as of September 30, 2012) and annual expenses of $73,417, leaving a deficit of $22,915.

This week’s column is about laying out various proposals under discussion to deal with our debt and deficit problem: we can increase revenue, cut spending, combine the two, increasing revenue while simultaneously enacting spending cuts and other pro-growth policies, and/or use risky monetary policy.

Increasing revenue
Some suggest that increasing revenue (raising taxes on wealthy Americans) is the solution to our debt and deficit problem.

In 2013, however, the federal government is projected to spend $3.8 trillion, and it is projected that the deficit will be under $1 trillion for the first time in four years. If we were to take all the earnings of every millionaire, we would still be left with a shortfall of between $100 billion and $200 billion. And the nation’s debt would still be more than $16 trillion.

If you rely on taxes alone, you cannot solve the nation’s debt and deficit problem without raising taxes on the middle class.

Cutting spending
Others argue that cutting spending is the solution. Some point to foreign aid, suggesting that it be cut. Foreign aid accounts for a little over one percent of the federal budget. Others would say cut Congress. Congress’ budget is around one-tenth of one percent. So even if we cut these two areas completely, more would have to be done in order to curb spending.

As mentioned in Part I, federal spending continues to surge. David Walker once said “There has been a dramatic increase in spending under the Obama administration. Most of it is attributable to year one of his presidency and the stimulus … but President Obama has continued to take spending to a new level.”

Cutting spending would require discipline and sacrifices.
Another group says that a combination of pro-growth policies, spending cuts, and tax increases would be the best way to get the country back on track. This group argues that, while spending must be cut, the federal government simply must raise more revenue.

Other potential options that some in the ‘hybrid’ group support include rolling back regulations to create jobs, increase the number of taxpayers, and, in turn, increase tax revenues, or implementing any number of changes to the budget process in order to make it more effective.
Risky monetary policy
What many don’t want to talk about is inflation and currency devaluation. Let me explain.

If I borrow $1 today and pay you back after a period of inflation, that $1 buys less. That money isn’t as valuable as the money that you lent me. Hyper-inflation is devastating to the economy, but history has examples of heavily indebted nations using this tactic as an effort to get out from under the heavy burden of crippling debt.

Similar to this would be currency devaluation. This can also lead to hyper-inflation. Both of these options used exclusively are equivalent to or just short of a country declaring bankruptcy. But if you have inflation or currency devaluation as part of the package, some would argue that it is an effective means at bringing debt under control.

An option that relies heavily on inflation or currency devaluation makes the country look weak, ineffective, and like a risky investment for businesses.

Regardless of whether you support increasing revenue, cutting spending, a hybrid approach, or even a package with risky monetary policies, I hope we are in agreement that, at this critical point in our nation, we cannot afford to operate without a plan, without discipline, and without accountability.

I have tried to spell out the possible solutions without too much bias. Those who regularly read this column know I prefer a hybrid that is made up of spending cuts and economic and regulatory policies that get people back to work.

In the next several weeks, I will give specific examples of some bills and policies I think will help our country deal with our debt and deficit problem.

As always, if you have questions, concerns, or comments, feel free to call my Abingdon office at 276-525-1405 or my Christiansburg office at 540-381-5671. To reach my office by email, please visit my website at www.morgangriffith.house.gov.