Imagine a family sitting at its kitchen table with bills piled high. They have no budget, only a general sense of where money comes from and where it goes. The lenders to whom they owe a considerable sum are not calling yet, but they might be soon. They owe nearly 5 times as much as they spend each year and almost 7 times as much as they earn. What’s more, the amount of debt goes up every single month because 40 cents out of every dollar they spend is borrowed.
If a financial planner sat down with this family, their situation would accurately be declared a man-made disaster. A full-on crisis management plan to restore financial responsibility would be developed and implemented. They would cut up their credit cards, stop buying nonessentials and create a plan to manage how much comes in and how much goes out.
When this is Uncle Sam’s kitchen table, however, the “answer” to dealing with financial mismanagement is usually to stave off crisis month by month or year by year, rather than actually avert or prevent it. For decades, but particularly in the last four years, politicians on both sides of the aisle have punted on paying for their immediate decisions.
In just a few short weeks, Congress and the president will once again be back at the nation’s kitchen table, faced with another decision about how to deal with the mounting stack of bills. At this point, they will continue to take in enough money to cover the essentials — interest on the debt (to preserve the nation’s full faith and credit), Social Security, Medicare and defense. Yet there will not be enough to cover everything else.
Will Washington learn its lesson that it is simply spending beyond its means and figure out a responsible way forward? Rather than look back and point fingers like a family facing financial disaster might do, the 536 negotiators at the table need a to-do list and a clear delegation of responsibilities.
First and foremost, they need a budget. More than 1,350 days have passed since the Senate last fulfilled its obligation to pass a budget. The House and Senate both need to pass a budget that recognizes the gravity of Washington’s spending addiction. It is not a matter of needing more money to cover ever-growing costs; rather, it is a matter of cutting costs. President Obama has already announced his budget will be late (again). If it is anything like his last proposal, it will not balance within 75 years. Senate Majority Leader Harry Reid and Mr. Obama must do their jobs: present and pass a responsible budget.
Second, our nation needs fundamental tax reform. Mr. Obama fulfilled his campaign promise to raise taxes on the wealthy. Democrats now agree that the majority of the Bush-Obama tax cuts are beneficial. Now, it is time to look beyond income and payroll taxes. Let’s address the corporate tax rate and small business taxes — still the highest of any developed nation. Lowering the corporate tax rate and reducing taxes on small businesses will spur economic activity and investment that in turn will produce more revenue.
Third, we need to focus on entitlement reform. Washington has to get a grip on the pending explosion in spending on programs like Medicare, Medicaid and Social Security, often dubbed the “third rail” of American politics. Left unchecked, these programs will consume the entirety of the budget within a matter of years. Democrats and Republicans came together on the issue of welfare reform in the 1990s by turning over authority and responsibility to the states; states should be empowered to handle Medicaid in the same way. Moreover, by instituting consumer-focused reforms in Medicare, millions of baby boomers can become part of the entitlement solution. Lastly, with an ever-increasing life expectancy, younger folks like me should expect to work a few more years before riding the third rail.
Fourth, we need pro-growth regulatory reform. Jan. 1 was a difficult day for many small businesses. Not only did the “fiscal cliff” legislation contain higher taxes, but most of the $1 trillion in Obamacare taxes took effect. The least Washington can do now is to turn off the spigot of regulation and taxation poisoning the small business job market. After all, it is small businesses that are hurt the most by excessive, expensive and unnecessary red tape, rules and targeted taxes. Large corporations and the “super-rich” like Warren Buffett have legions of attorneys to cope with more regulation and complicated Internal Revenue Service code. Mom and pop shops do not enjoy that luxury.
Just like a family facing financial difficulty, there is a way out. It may not be easy, and it might be painful at times, but it is time for Washington to be responsible, resourceful and creative. Failure to enact a multifaceted solution to our overspending problem will only add to more bills on the table — and eventually, a further downgrade of our credit rating and a shattering of the dreams of all American families.
Rep. Tim Huelskamp is a Republican member of the House of Representatives from Kansas.
By Richard Rahn
Imprecise tax laws leave room for agency abuse and corruption