Cato Institute:Spending is our problem Part 2

Cato Institute:Spending is our problem Part 2

But we also know that it is difficult to convince politicians to do what’s right for the nation. And if they don’t change the course of fiscal policy, and we leave the federal government on autopilot, then America is doomed to become another Greece.

The combination of poorly designed entitlement programs (mostly Medicare and Medicaid) and an aging population will lead to America’s fiscal collapse.

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People think that we need to raise more revenue but I say we need to cut spending. Take a look at a portion of this article from the Cato Institute:

The Damaging Rise in Federal Spending and Debt

by Chris Edwards

Joint Economic Committee
United States Congress

Joint Economic CommitteeUnited States Congress

Added to cato.org on September 20, 2011

This testimony was delivered on September 20, 2011.

America Has a High-Spending and High-Debt Government

Some analysts say that America can afford to increase taxes and spending because it is a uniquely small-government country. Alas, that is no longer the case. Data from the Organization for Economic Cooperation and Development (OECD) show that federal, state, and local government spending in the United States this year is a huge 41 percent of GDP.

Figure 2 shows that government in the United States used to be about 10 percentage points of GDP smaller than the average government in the OECD. But that size advantage has fallen to just 4 percentage points. A few high-income nations — such as Australia — now have smaller governments and much lower government debt than the United States.

 

Historically, America’s strong growth and high living standards were built on our relatively smaller government. The ongoing surge in federal spending is undoing this competitive advantage we had enjoyed in the world economy. CBO projections show that without reforms federal spending will rise by about 10 percentage points of GDP by 2035. If that happens, spending by American governments will be more than half of GDP by that year. That would doom young people to unbearable levels of taxation and a stagnant economy with fewer opportunities.

American government debt has also soared to abnormally high levels. Figure 3 shows OECD data for gross government debt as a share of GDP.3 (The data include debt for federal, state, and local governments). In 2011, gross government debt is 101 percent of GDP in the United States, substantially above the OECD average of 78 percent.4

3 Organization for Economic Cooperation and Development, “Economic Outlook Database,” September 2011, Annex Table 32.
4 This is a simple average of OECD countries. The OECD publishes a weighted average, but that figure is, of course, heavily influenced by the United States.

 

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