The first pie chart illustrates expenditures which comprise the national budget. Mandatory portion of outlays (Social Security, Medicare/Medicaid, and interest on the debt) are colored red and gray. The revenue taken in by the government (2nd chart) which includes income tax, payroll taxes, corporate taxes, etc., now only approximates the mandatory portion of the budget. Discretionary spending, labeled as defense and non-defense, total more than $1.4 trillion dollars and cannot be paid for. The Treasury issues debt in order to fund these programs.
Because of demographics, Social Security and Medicare payments are projected to expand at a much greater rate than the economy for several decades. The third largest component of the budget is defense spending. The United States military currently operates in over 130 countries. Partially because of our dependence on oil and the instability of regions that export oil, spending on defense will continue to be astronomical. As trillion dollar deficits mount, the interest on the debt will increase dramatically. At some point down the road, perhaps very soon, servicing the debt will become a mathematical impossibility; especially if interest rates rise.
Government officials have begun to acknowledge this predicament. Federal reserve chief Ben Bernanke made this statement earlier this week:
"To avoid large and ultimately unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above."
The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax.
Volker was not talking about replacing the current income tax system, but adding a value-added tax on top of what we already pay. Everyone knows, including Bernanke and Volker, that raising taxes leaves people less money to save or spend. As a result of increasing taxes, the economy would expand more slowly (or perhaps contract), unemployment levels would rise, and the standard of living would shrink.
Bernanke mentioned that modifications to Social Security and Medicare are necessary. In fact, President Obama has already appointed a commission to make recommendations that would accomplish just that. But just as raising taxes takes away money from citizens, withholding or postponing entitlements to seniors would also result in a reduction of spending and inevitibly contract the economy.
So, why raise taxes and cut promised benefits if it hurts the economy?
Quite simply, the power brokers are willing to shrink the economy in order to preserve the status quo as long as possible. Without raising taxes and/or curtailing entitlements, the national debt and the growing interest would become unserviceable. Eventually, there would have to be a default. Think Iceland, and not too far from now, Greece. By forcing austerity measures on to the public, the government and the banking system can continue to prosper even as the general populace starves - at least for longer a period of time than if these measures were not taken.
If measures such as those proposed by Bernanke and Volker are not taken, the financial system and political system of the United States will collapse. The flip side is that if these measures are implemented, the destruction of the individual wealth of America's citizens will follow.
Given the choice of postponing the collapse of the system at the expense of the citizenry, or allowing the broken system to collapse, thereby displacing the corrupt leaders that now control the system, which path is the better one for the population as a whole? If the people do not allow the politicians and their handlers to implement burdensome taxes and cuts, thus causing the system to fail, could the people of America then rise up from the ashes and begin anew? Could people implement a system of governance more reminiscent of the one formed over two hundred years ago, rather than the oligarchic controlled welfare state we have mutated into?
The vast majority of the people in America still believe, or at least hope, that the system can be still be saved (restored to the former state) via the political process without atrophy in our standard of living. This is a fantasy. It's now a matter of mathematics. The powerful elite realize this. Even as the system crumbles they are taking advantage of the people who support them. The system is collapsing, yet like lemmings, the populace continue to follow the lead of those making decisions for them. We continue to position the military in countries all over the globe, and soon we will begin to pay more of our income to the government, the banks, and the foreign countries that hold our debt. This country was founded on the principle of individual freedom, where the government serves the people. We have been transformed into a country of debt slaves where the people serve the government. Sadly, too many of us think that is the way it is supposed to be.
