A Cut Above the Rest

Courtesy of Mark Lennihan/AP/File

The U.S. debt crisis; according to the Financial Crisis Inquiry Commission, a combination of many things have contributed to it - including, but not limited to: the sub-prime mortgage crisis, lack of regulatory oversight in the financial sector, excessive borrowing on both Main Street and Wall Street, the concept that specific institutions were too-big-to-fail, the "tax treatment of financial products and investments" and a "global imbalance of savings".

Right now the U.S. National debt is upwards of a staggering $14 trillion. More than $1 trillion make up the U.S. federal budget deficit, or the amount of money Congress spends in relation to how much it actually receives from the IRS. Congressional "spending" makes up about $3.5 trillion.

What complicates things, is that the U.S. currently has an established debt ceiling of $14.3 trillion. According to Federal Reserve chairman, Ben Bernanke, either the U.S. raises the already stifling debt limit or it should be prepared to default on its debt, both domestic and abroad. Of course, the epic scenario has not escaped the political merry-go-round in Washington. While Democrats argue that raising the debt limit would keep the U.S. from reneging on its global financial responsibilities and halt a  government shut down; Republicans argue that there are other ways to bring down the debt before we actually have to "go there". The GOP now proposes deep spending "cuts" in exchange for raising the country's ever-mounting ceiling of debt.

"Cuts"; a word that conjures up visions of sacrifice, lessening, or even doing without. For all intents and purposes, its been a word that has been thrown around Capitol Hill quite a bit lately, and one that, at least, symbolically, seems to be easier said than done. Everyone knows its something that needs to happen, but it seems an unsolvable mystery in determining where to begin. Whether its Medicare or Social Security, education or research and development, in order to get our fiscal house in order, something's gotta give. Question is-what are we as Americans, willing to sacrifice by doing without? Or better yet; what can we AFFORD to sacrifice by doing without? According to a recent Gallop poll, most Americans are definitely OPPOSED to cuts being made to Social Security, Education, and Defense.

Last February, President Obama organized a "deficit commission", more formally known as the National Commission on Fiscal Responsibility and Reform.  The commission is made up of a Congressional bi-partisan committee that has the responsibility of "identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run."  In addition "... the Commission shall propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015." In laymen terms, its doing a job that is neither popular or, in some cases, palatable, but that needs to be done; reduce spending.

So, just what are the spending "cuts" Congress is looking to make? As expected, Social Security will most likely be one of the entitlement programs that will undergo a major face lift.  In a disturbing new report published by the Congressional Budget Office, Social Security will begin running deficits 5 years earlier than the original 2016 projected date. It will pay out $45 billion more than it collects in payroll taxes in 2011 alone. As the government fishes for a strategy, one idea that has been tossed around by President Obama's deficit commission, has been the possibility of gradually raising the age of Social Security retirement to 68 by 2050 and 69 by 2075. The committee's proposal also includes a decrease in the program's cost-of-living adjustment and an increased cap on any income subject to Social Security taxes.

Another plan submitted by the commission, is a 15-cent a gallon increase on gasoline. Although this particular proposal would not require Americans to actually relinquish anything (at least, not technically), we would be required to pay higher prices at the pump in exchange for, say, lower income taxes.  But with the possibility of gas prices rising in light of the protests in Egypt, and the fiscal pinch already felt on many taxpayer's wallets; would this be another "grin and bear it" type of burden?

Other committee proposals include reconstructing the tax code. According to FoxNews.com, "... taxpayers would face three tax brackets of 12 percent, 21 percent and 28 percent." This would call for the elimination of special tax provisions, more efficient tax rates across income classes, and dissolving the Alternative Minimum tax.

Still, another idea that seems quite popular among Republicans, is the elimination of earmarks. Some Democrats oppose the idea, but in the President's State of the Union address, he said he would veto any bill that came across his desk containing earmarks. This comes as both a response to last year's midterm elections to do away with earmarks and as a transparent effort to let voters know that special interest groups aren't receiving money that goes to benefit these groups exclusively. According to Robert Gibbs, White House spokesman, decisions like this, are just one of many tough choices that we face as a country in order to curb U.S. waste.

Republicans just recently announced that they look to slash spending, about 17%, in areas such as transportation, energy, commerce, water and agriculture. According to  Bloomberg's latest report, "labor, health-care and education programs would shrink by 4 percent, as would foreign aid and international programs. Congress’ budget would see a 2 percent cut. Defense would grow by $8 billion, or 2 percent, from 2010 levels while homeland security funding would be frozen."

As an additional measure, in his address, The President called for a five-year, governmental spending freeze on non-security discretionary spending, in efforts to reduce the deficit by $400 billion over 10 years. But the GOP wants to go deeper.



Courtesy of Mark Wilson/Getty Images N.A.

In his response to President Obama's State of the Union Speech,  Republican Congressman and Chairman of the House Budget Committee,  Paul Ryan, warned Americans that the debt our nation has incurred will "... soon eclipse our entire economy," and that if we don't act now, "America's best century will be considered our past century." In an effort to convey, what many on the Right view as our nation's sobering reality, Ryan provides statistics on government spending and how it is crippling the economy, reiterating that incessant borrowing will only grow the debt to catastrophic levels.

Despite the bleak forecast, Ryan says Republicans are willing to meet the President halfway in order to handle the country's debt crisis, "I assure you that we want to work with the president to restrain federal spending." He also admitted that the debt the U.S. faces is one that has occurred over many years, not solely under one administration or another, and that Obama was handed a "severe fiscal and economic situation". 

With the GOP now at the Congressional helm in the House and what is said to be the worst of the economic recession behind us, one can only hope that a better pecuniary destiny awaits us. But we need a plan; we need specifics. We have to make some tough choices; in some areas we will come out ahead, in others, we'd honestly better be ready to just suck it up. According to a recent Reuters Poll, 71% of Americans oppose the idea of raising the debt limit. If it is something both parties actually agree on, which is rarely ever the case, then a debt ceiling increase might actually be worth considering.  Again, we are going to be forced to make some decisions that, frankly, just might leave us scratching our heads in bewilderment. The bright side is that at least both Congress and the White House concede that we can no longer sustain the current trend of spending. One thing we can be sure of, is that Pennsylvania Avenue got the people's message last November at the polls. The nation recognizes that we have a fiscal dilemma on our hands and if nothing else, we should note, that all parties are working together diligently to solve our budgetary woes and to restore America's rightful economic standing.