November 09, 2010
America faces a growing crisis. Our federal government has accumulated a $13.6 trillion debt over the last few decades, and this debt is expected to grow significantly in coming years. This burden is a drag on our economy. Borrowing more and more would seriously threaten the livelihoods of Americans and our standing in the world. But if we act now, we can set our nation on a new course. America has solved other great challenges in its history. By rising above partisanship and working together, we can make a plan to live within our means and preserve the American tradition of increasing prosperity for future generations.
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Official government projections show our $13.6 trillion in federal debt doubling by the 2020's, tripling by the 2030s and even quadrupling by the 2040's. That means that unless we change our course, $13.6 trillion could grow to more than $65 trillion.
By making changes now, we can set America on a new course. By rising above partisanship and working together, we can make a plan to live within our means and preserve the American tradition of increasing prosperity for future generations.
In order to put our federal government on a new path, we will need to look at all areas of the federal budget. Here's an overview of the major elements of our federal budget that shows the wide range of potential solutions that exist. By examining these areas, we can support elected leaders from both political parties who want to do the right thing, and design a plan that helps us live within our means.
There are many solutions that would help address America's fiscal challenges. Some of the most frequently proposed changes to current policy are present below for each of the major issues areas. The solutions presented illustrate the types of approaches that that have been presented to elected officials for their consideration. While each of us individually could put together a long-term budget plan that would satisfy our own priorities, it will take compromise, collaboration and trade-offs to reach a workable plan that wins national support.
Providing for the national defense is a key responsibility of the federal government. America's military is the strongest fighting force in the world. And it should be since the United States spends more on defense than the next 14 countries, combined. We can develop a defense budget that protects our nation against our most important threats in an affordable way.
Healthcare represents 44 percent of projected federal spending by 2040, and is the largest and fastest growing fiscal challenge. The federal government spends money on healthcare through various programs such as Medicare, Medicaid and insurance for government employees.
There is clear evidence that our health care system needs to improve. The U.S. spends twice as much per person on health care than most other countries, but our results are no better. Within the United States, some regions spend twice as much per person than other regions, without a clear difference in results.
Social Security is an important program that is part of the fabric of the America. We must ensure that Social Security is available for future generations. Without reform, Social Security's shortfall will grow larger and larger until the program may simply be unable to pay full benefits to future retirees. By acting sooner rather than later, needed reforms can be phased in more gradually, giving people time to plan for retirement years. Reforms can also be implemented in ways that protect the most vulnerable.
Making changes to defense, health care and Social Security will help us reduce our debt and also leave money to fund other critical responsibilities and make important investments in our future. But even though other spending programs (including agriculture, transportation, homeland security, education, unemployment benefits, national parks, international relations, and the operations of government) are occupying smaller and smaller portions of the federal budget, there are still opportunities to save money.
In order to balance our budget and reduce the amount of debt the government takes on each year, we must match the level of government revenues with the level of spending. Currently, the government spends approximately $3.5 trillion a year, which is far more than the approximately $2.1 trillion it collects in taxes. This imbalance between spending and tax revenues is expected to continue, and even grow, over the next several decades. By 2040, revenues will only cover half of total spending.
We can reduce our spending or increase our revenues, or we can do a combination of both. The more we reduce our spending by making changes in the areas described earlier, the less we will need to raise taxes. On the other hand, the more we raise taxes, the less we would need to cut spending.
Once we have a plan in place that reduces spending and increases revenues, a strong annual budget process for the government would help us stay on track. During the 1990s, tough budget controls combined with a growing economy to help improve the budget's bottom line. In 1990, when the first controls went in place, the federal deficit was $269 billion, or almost 4 percent of the economy. By 2000, our country was experiencing a surplus of $236 billion, or more than 2 percent of the economy. These controls expired, however, in 2002 while the economy was recovering from a recession and the country was engaged in a new fight against terrorism, which made many lawmakers reluctant to re-impose the budget controls. The budget situation in Washington has been out of balance ever since.
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