National debt diminishes our generation’s prosperity.
Recently I read The Hoisington Investment Management-Quarterly Review and Outlook, Fourth Quarter 2012, which clearly explained the consequences of tax increases and increased government spending. Unfortunately, many people get caught up in rhetoric and distractions, such as a “War on Women,” and do not seem to care about the federal deficit and debt or economic growth.
I think people have become desensitized to our stagnant economy. It is especially important for our generation to wrap our minds around this realization and understand the impact of economic deterioration.
Twenty-two decades have passed since 1790. The most recent decade-that is, with data from 2000 to 2009-was the second-worst decade for economic growth. The only decade with worse economic growth occurred during the 1930s due to the increased taxation and government spending of FDR’s administration.
History has shown that high taxation cannot cover high government spending, which leads to a deficit. Each year the federal budget deficit is added onto our total national debt, which is approaching $17 trillion, according to the U.S. National Debt Clock.
Don’t mistake this article as an opinion against any one president or party. If anything, this article is an opinion against the idea that it’s okay to spend more than we raise in revenue, and that the government can deficit spend the country into prosperity. Spending was increased under President Bush, and President Obama has drastically increased spending during just one term.
Unfortunately, what has not been answered by this past election is how all these trillions of dollars were spent. Where did the money go? It’s not stimulating the economy, so why are we still deficit spending?
Government spending is going to entitlements that consume capital instead of growing it. A prosperous economy occurs 1) when capital is left in hands of individuals and 2) when the government debt is low.
(1) Prosperity is achieved from the hard work, creativity and ingenuity of individuals. But through borrowing, spending and taxation, the government diverts dollars from those productive individuals. Think about it like this: capital is like fuel and prosperity is like a flame. When the government taxes capital away from individuals, individuals have less capital to fuel that flame. Individuals would spend capital more prudently in order to grow it, while the government spends capital only for it to be consumed.
When taxes increase, many businesses will move jobs overseas to countries with lower taxes, and those that do not leave will not be able to financially support hiring new employees. Not only does this reduce employment, but businesses cannot hire the people necessary to produce and sell more-which makes the economy grow.
(2) High government debt diminishes more profitable long-term decision-making, because individuals and businesses are unsure of the future and cannot plan for it. High debt raises the possibility of increased taxes or a future financial crisis. Therefore, individuals and businesses play it safe, making less profitable short-term decisions resulting in a slow growth economy.
High taxes and a high debt inhibit prosperity. Determining what tax rate is too high or too low can be challenging, because at a certain rate businesses and individuals will decline in wealth creation, and the government will end up taking a large slice of a small pie, bringing in less revenue than if it took a small slice of a big pie. The best guideline is to have lower rates and a broader tax base.
But what is definitive knowledge is to have a balanced budget, which we need to do in order to stop adding annual deficits that grow the debt.
While rhetoricians claim that through collective action the government can tax and spend its way into prosperity, the reality is that government will tax and deficit spend us into poverty.
The challenge for young people used to be just graduating from college. Having a college diploma served as a gateway to lasting and rewarding employment. Now the challenge for our generation-because of government policies that inhibit prosperity-will be trying to find a job. Those in political offices have betrayed both the public’s and our generation’s trust. They’ve failed in their fiduciary responsibility to oversee the finances of the United States of America. If we want to be a generation of prosperity we need to elect only those who will fulfill that fiduciary responsibility.