Thanks to the overspending of Congress and successive presidential administrations, America's debt totals $22 trillion, and it is projected to grow faster and larger in the years to come. Legislators have been shielded from the consequences by three decades of low interest rates and the fact that the United States is still one of the best places in the world for foreigners to invest. However, a time will come when no level of cheap debt will make up for Washington's fiscal recklessness.
Permanent low economic growth, stifled entrepreneurial spirit, and high unemployment are looming—not to mention the risk of a full-on, debt-driven financial crisis.
The way to prevent such outcomes is clear. We must deal with the drivers of our future debt: Social Security, Medicare, and Medicaid. But for those who think it is not politically feasible to tackle entitlements, the Congressional Budget Office (CBO) recently published a report with a broader range of suggestions. They include limiting highway and transit funding to expected revenues (translation: don't spend more than you collect), eliminating Head Start, and creating a federal value-added tax (VAT).
Disappointingly, many of the CBO's alternatives are meant to grow government revenue rather than shrink government expenditures. All told, the report details $15.9 trillion in tax hike options vs. $5.7 trillion in spending cut options. Nine of the top 10 "savings" come from tax increases, including a 5 percent VAT (which may eventually hit 20 percent, as has happened in Europe), a carbon tax, and an increase in the maximum taxable earnings for the Social Security payroll tax. These off-the-shelf options are worrisome. Given the choice, politicians will likely opt to take more of our money rather than to confront special interests and reduce the size of government.
On the spending side, the largest savings would come from establishing caps on federal outlays for Medicaid and from cutting $50 billion a year over 10 years from the Department of Defense. But even these "cuts" would be against a baseline that assumes an ever-rising level of spending. In other words, many of them would simply slow the speed at which government grows, not reduce the total spent.
All in all, the CBO's suggestions reflect a failure of imagination. Could the agency not have come up with a few bold spending reforms? Terminating the departments of Agriculture, Commerce, and Energy should all be on the table, for example. Or we could combine them into a single Department of Cronyism. Surely that would save a billion or two.