Every wage-earning American started the new year with less take-home pay. The payroll tax holiday ended on January 1, which meant breadwinners across the country were forced to figure out how to make ends meet with two percent less.
Now Washington is getting a taste of its own medicine: making do with less. Automatic spending cuts took effect on March 1, requiring Uncle Sam to cut back 2.4 percent of its spending to save $85 billion from a $3.5 trillion annual budget.
The agreement to lift the debt ceiling in August 2011 eventually led to the automatic across-the-board spending sequester currently in place. Because political leaders failed yet again to reach an agreement on deficit reduction, the federal sequester kicked in on March 1.
Contrary to the school of thought that we can tax our way out of this sea of red ink, reality tells a much different story. Washington is drowning in an ocean of debt because Washington spends too much money. The sooner political leaders come to grips with reality, the better.
Here are the facts. Under current law, tax revenue coming into the federal Treasury soon will reach and then surpass the 40-year average level. Revenues will remain at historically high levels through 2023, according to the nonpartisan Congressional Budget Office, or CBO. At the same time, federal spending already is above the 40-year average level. And it's projected to increase.
So, according to CBO, if tax and spending laws remain on course, the federal debt held by the public will reach 76 percent of the gross domestic product by the end of this fiscal year. It will hover above 73 percent from 2014 to 2023. That level of federal debt is significantly higher than the 39 percent average of the past four decades.
This means we are living high on the hog today on our children and grandchildren's dime. It means Washington is borrowing on the backs of the next generation. It means Washington needs a reality check before the American Dream fades into the backseat of historical fiction rather than serving as the driving force behind the American way of life.
Those who claim the national debt is harmless are talking hogwash. Consider that foreign investors own approximately 48 percent of the national debt held by the public. We owe both the Chinese and Japanese governments more than $1.1 trillion. Money that is tied up to service the debt is money that's unavailable for tax relief or to finance services and functions of government.
Federal spending on Social Security, health insurance subsidies and debt service is projected to rise significantly as America's aging population reaches retirement and health costs continue to soar.
Instead of taking a stand proclaiming the deficit buck stops at his desk, the President is waging a public relations blitz to convince Americans that Washington needs even more taxes to balance Uncle Sam's fiscal ship. Regrettably, he's using his bully pulpit to manufacture a crisis, that is, by suggesting meat inspectors, air traffic controllers, first responders, border patrol agents and teachers would lose their jobs as a result of the sequester. When average Americans are forced to make ends meet with less, essentials such as food and shelter are not first up on the chopping block.
Instead of standing up for America's long-term prosperity, the President is telling Congress to stand down and raise taxes, again.
But, we already went down that road. The President argued in December an across-the-board tax increase was necessary to prevent the country from free-falling over a so-called fiscal cliff. His solution to Washington's spending binge is to raise taxes. So, against a melodramatic backdrop played out on New Year's Eve, the President secured a tax hike. In addition to the payroll tax increase, Americans will now pay up to 23.8 percent on investment income. And the top marginal 39.6 percent tax rate now effectively reaches 41 percent due to phase-outs of personal exemptions and limits on itemized deductions.
Even so, the President is calling for raising more taxes. He's choosing to declare the sky is falling instead of working with Congress on meaningful spending and entitlement reforms, not just to save money but to save the programs themselves.
The President is wasting this opportunity to address Washington's debt crisis. Chronic fiscal mismanagement creates a crisis in confidence. The uncertainty harms the economy and weakens the inalienable pursuit of happiness and prosperity. By abdicating the high road and failing to commit to address the swelling debt burden, the President's vision of America saddles future generations with a legacy of deficits and debts as far as the eye can see.