ANSWERS TO YOUR QUESTIONS
Although I.O.U.S.A.: Live is over, the cast of I.O.U.S.A. still wants to hear from you. Here are some responses to questions you've submitted online. Stay tuned for more answers from Dave Walker, president & CEO of the Peter G. Peterson Foundation and former U.S. Comptroller General, and Bob Bixby, executive director of the Concord Coalition.
ANSWERS FROM DAVE
BILL, POPANO, FL:
if one looks at the reduction, needed to balance the budget.(ie ss moneys are not gov reciepts.) the only option is some form of debt repudiation. what form of such do you favor given the fact that its better to approach the problem before the markets do? and why do you choose such an approach?
DAVE WALKER:
Dear Bill,
The United States will not repudiate or default on its current debt. Furthermore, we can't inflate our way our of our problem, either, because our single biggest problem is the unfunded promises associated with Medicare and they grow much faster than inflation. We need to re-impose tough budget controls and reform our Social Security, Medicare, and Medicaid programs as well as our health care and tax systems. We also need to re-prioritize and re-engineer the base of the federal government.
All the best,
Dave Walker
SALLIE, BOULDER, CO:
So, what is the economically sound solution for health care and Medicare?
DAVE WALKER:
Hi Sallie. I think we need to take a number of steps to reduce the rate of increase in health care costs (e.g., competitive bidding, limited re-importation, limits of advertising of prescription drugs). We also need to more effectively target taxpayer subsidies for Medicare and tax preferences for employer-provided health care to help those in need, as oppsoed to our current, largely one-size-fits-all approach. Ultimately, we need to engage in comprehensive health care reform that addresses four key pillars: coverage, cost, quality and personal responsibility. And we need to get started now because out-of-control health care costs represent our nation's biggest fiscal and competitiveness challenge.
All the best,
Dave Walker
MATTHEW K., BEL AIR, MD:
Given the unwillingness of our politicians to address this problem facing our nation, what can the average citizen do to prepare for the adverse effects to come -- besides buying gold, a gun, and ammo??
DAVE WALKER:
Matthew, individuals need to recognize that the government has over-promised. Therefore, individuals who are not in retirement or at retirement age need to assume they'll have to take more personal responsibility for their own financial futures. At the same time, the federal government should have a sound and secure safety net for the poor.
SCOTT C., DEERFIELD, IL:
What would be the probability of the government printing money to pay for the deficit instead of raising taxes or reducing programs? What will inflation look like?
DAVE WALKER:
Scott, we simply cannot inflate our way out of our $53 federal financial burden since the $41 trillion in off-balance sheet obligations grows faster than inflation.
KATHLEEN C., FOREST PARK, IL:
How will a continuation of the growing gap between rich and poor, with the shrinking of the middle class, affect the long-term stability of the U.S.? Is it important to address this issue?
DAVE WALKER:
Good question, Kathleen. There is a growing gap between the rich and the poor in the world and within the U.S. This is a serious issue and could result in additional tensions and civil unrest over time if it is not addressed. The degree of risk will depend in part on the certainty and security of the government's social safety net.
ANSWERS FROM BOB
CAROLYN H., GAINESVILLE, GA:
Do you support the Fair Tax as an IRS replacement? What could we do to implement the Fair Tax?
BOB BIXBY:
Carolyn --
The Concord Coalition is open to the idea of fundamental tax reform, but the Fair Tax, as it is currently structured, is problematic.
First, there is some considerable debate as to whether the tax rate is sufficient. There are several economists who suggest that the 23% rate is not large enough to maintain current levels of federal tax revenue. The President's Advisory Panel on Federal Tax Reform was skeptical that the proposed rate of 23% wasn't large enough and suggested the rate had to be at least 34%.
Second, the Fair Tax also includes a "Prebate" which would give families enough cash to pay the tax rate on all their spending up to the poverty level. Including such a system would be expensive. Although the "prebate" would be designed to make the Fair Tax more progressive, it would represent a new entitlement program which the President's panel deemed to be large, if not one of the largest in American history.
Third, the Fair Tax assumes that the government will pay the tax rate on everything it purchases. For instance, Len Burman, director of the Tax Policy Center, suggested the government would certainly not pay a $9 million tax on every $30 million fighter jet it purchases from Lockheed Martin. Therefore, this adds an additional revenue burden for citizens subjected to the Fair Tax to meet.
These are just a few of the recognized concerns with the Fair Tax, and as it currently stands.
Bob Bixby
DOUGLAS S., BRISTOL, CT:
Nobody likes to pay taxes. But everybody wants safe roads, bridges, police, firemen, national security and related forces...I think people would be less frustrated about paying taxes if they could believe their money wasn't being wasted...If Congress authorizes a PayGo [pay-as-you-go] system like we had in the 1990's, will programs such as NIH [National Institutes of Health] funding to cure chronic diseases like diabetes still be seen as an investment?
BOB BIXBY:
This observation reflects the frustration many Americans feel about the way the government spends their tax dollars. They simply don't trust politicians to spend the money wisely. Politicians must remedy this frustration if they are going to expect their constituents to pay higher taxes or accept cuts from projected spending levels on important programs such as Medicare and Social Security. No one will accept such sacrifices if they think the savings will be squandered. It is true, as we point out in the movie, that pure waste and "pork" is a relatively small part of the budget. But it is a very big deal in shaping public perceptions. So while politicians can't entirely fill the $53 trillion hole by cracking down on waste, fraud and abuse -- or frankly come anywhere close -- they can begin to regain public trust and build consensus for the more difficult budgetary choices by demonstrating that they know how to set priorities and distinguish between political wants and public needs.
As a technical point, the pay-as-you-go rule (paygo) does not apply to annually appropriated programs such as NIH funding. It only applies to entitlements and taxes. Nevertheless, it's an excellent question because it raises the distinction between government spending on things that have a potential payoff down the road (i.e., investments) and things that do not (i.e., consumption). Currently, the government does not do a very good job of distinguishing the two. In fact, two-thirds of the budget is committed to entitlement programs such as Social Security, Medicare and Medicaid along with interest on the national debt. If we simply allow these items to grow on autopilot, the resulting spending will crowd out investments that could help grow the economy. Clearly, there are areas such as health care and scientific research, roads and bridges, education and homeland security where we could invest (spend) more. There is no reason to presume, however, that these investments must be deficit financed. They can, and should, be financed by setting priorities, cutting back on low priority items, including tax loopholes that have no economic justification and, if necessary, raising new revenues. Paygo is an important tool for enforcing such trade-offs. Its basic logic is that if something is worth doing, it is worth paying for. Paygo is not inconsistent with investment. To the contrary, it seeks to stop the fiscal bleeding and encourage wiser allocation of our tax dollars.
BRAD P., FORT COLLINS, CO:
Given the influence that special interest groups have in Washington, how can the unrepresented majority of Americans plead their case for sound monetary policy and fiscal sanity, especially when no candidates are legitimately addressing the issue?
BOB BIXBY:
Paul Tsongas used to say that politicians are like weathervanes. They will point wherever the wind is blowing. Our job is to change the wind direction. The way to do that is to become a local activist for fiscal responsibility and generational stewardship. We can help you gather the facts. Once you do, start speaking out through social, civic, and professional networks. Demand straight answers from candidates and elected officials. When your local Member of Congress holds a Town Hall meeting, go and make your voice heard. If you can gather some friends and family, bring them along. Go to "Meet the Candidate" forums and ask tough questions. Support those who give you honest answers. Individual Americans have more power than they give themselves credit for.
