A Doubleplusgood Solution to Retire the US National Debt

Most of us choose a particular gas station because it offers the lowest price, even if it is less convenient and even if it is only to save a few cents per gallon. Considering that federal and state gas taxes make up on average 23% of the cost of gas at the pump, could you imagine the outrage among the people were gas pumps reconfigured to show the unbundled gas tax while pumping? The government plays the same game with employer-withholding of income taxes. Think about it: Would the politicians be able to keep taxes at confiscatory rates if we had to send a monthly check to the IRS? I doubt it.


To be sure, keeping these and other taxes hidden is how politicians keep the populace complacent while they spend our money. But the dangerous combination of government gluttony coupled with the citizenry’s complacency has left us with $11.8 trillion in national debt, the largest in the history of national debts. In fact, on a GAAP basis, the basis on which the U.S. Government forces public companies to report their obligations, the national debt is $65.5 trillion.


To give $11.8 trillion some context, consider this: were you to stack $11.8 trillion worth of $100 bills, you could make 40 stacks--each one reaching from the Earth to the international space station (calculation at bottom). (The $65.5 trillion stack of bills would reach the moon.) And make no mistake: this is not Monopoly or Second Life virtual money.

The national debt is a real debt that must be paid back by you and I and our children and grandchildren. Per capita, the (non-GAAP) national debt is $38,484. So, you have a real bill for about $38,000 hanging over your head. And if you are married, go ahead and double it.


It is clear to me that if we care about our nation and our progeny, we need to step up and build a better future for them even if it means a disparity of burden among generations. Therefore, I propose the concept of Individual National Debt Accounts, or INDAs, (pronounced, in-duh) to hold each person’s share of the national debt.


To implement INDAs, at least three fundamental decisions would need to be made.


First, we would need to identify a target date for retiring the debt. For the sake of illustration only, lets say 2035.


Second, we need to identify the subset of the population that would receive INDAs. (Here is a government program in which we would certainly want to include undocumented workers.) This could easily include persons who are yet unborn (and who would participate on the tail end of the program) and those who are expected to expire before the national debt does.


Third, we would need to decide whether the allocation of INDAs would be flat or progressive.


Since the wealthy already pay more than there fair share (see my previous post) I favor a flat regime. And, for reasons developed further below, I favor broad, broad participation among voters.


Once the goal and participants are identified, then the INDAs would be rolled out. The statements you receive would state your entire portion of the national debt and set up an amortization schedule for repaying that portion by the target date. The INDAs would essentially work like credit cards, with a minimum payment due and the ability to pay off your entire obligation in one fell swoop, except only the government can charge against it.


At least yearly the INDA balance would need to be adjusted to account for deficit spending and any other factors impacting the ability to retire the national debt by the target date under then current assumptions. Therefore, even if you pay off your INDA, if the government runs a deficit, your INDA balance—albeit only for that year—springs to life again and you are back in the system. If you did not pay off your INDA, you will also see the balance increase and, perhaps, the minimum payment adjusted.


An INDA program would not only lead to retirement of the national debt, it could also usher in a new era of government accountability, if the INDA program enjoyed broad based participation among the voting public. Politicians would be under enormous pressure to deliver balanced budgets while the INDA program is in effect because every deficit dollar is being allocated in a reasonably immediate and a very real way among the voting public. The voters, if they are directly footing the bill, will demand accountability in spending decisions. For example, some version of a balanced budged amendment would almost certainly be passed.


Moreover, INDAs could enjoy support among investors and also across political lines. First, conservatives will find the program attractive because it is grounded in fiscal responsibility and offers the hope of creating a potent pressure mechanism to shrink government. Liberals could find INDAs attractive because unpopular deficit war spending would hit INDA accounts. Like any other federal outlay, the accountability mechanism will force the government to justify expensive military deployments.


EG


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Calculation: Multiply .0043" (thickness of bills) by 11,800,000,000,000 (dollars). Divide by 100 for 100 dollar bills. Divide by 12 to convert inches into feet. Divide by 5280 to convert feet into miles. This yields 8008 miles. Divide that by the distance to the space station ~200 miles. The result is 40 (rounded down).

MWM ISO the Politics of Truth

Today's political rhetoric is weighed down by misguided denunciations of the so-called "politics of fear." Even as our Nation debates the merits of health care reform, representatives of both parties regularly accuse their opponents of engaging in the politics of fear.

Karl Rove recently pointed out in a Wall Street Journal Op-ed that President Obama promised during the campaign to end the “politics of fear and cynicism,” but that the President expressly played the "fear" card at a July news conference:

Reform is about every American who has ever feared that they may lose their coverage, or lose their job. . . . If we do not reform health care, your premiums and out-of-pocket costs will continue to skyrocket. If we do not act, 14,000 Americans will continue to lose their health insurance every single day. These are the consequences of inaction.

The very dangerous false premise that unites both parties in denouncing the politics of fear is that nothing politicians do should scare us. If this were true, we would not need the protections of Federalism, the independent judiciary (although sometimes we need to be protected from it too), and the checks-and-balances among the theoretically co-equal branches of government.

The ultimate standard to which we should hold our politicians is truth--truth upheld as such independent of the emotive response it instigates.

Much of what is true is cause for legitimate fear. And fear in and of itself is a healthy motivator, if the fear is based in reality. The Bible, for example, teaches that "fear of the Lord is the beginning of knowledge" (Prov. 1:7).

We should be indifferent to whether someone is engaging is in the politics of fear, if that fear is grounded in truth.

EG

Why the Government Spending Binge?

On January 27, 1996, then President Clinton declared that the era of big government was over. We laugh or sigh at President Clinton's declaration now, but have you ever wondered how our Nation has devolved to the point where our politicians propose endless trains of taxing and spending programs for which we can't pay: e.g., cap-and-trade; health insurance reform; cash for clunkers; and the so-called stimulus bills? The reason today's politicians spend with impunity is that they are supported by a host of voters dependent on government largess for their existence and a sharply growing free-riding class predisposed to government handouts.

According to IRS statistics complied by the nonpartisan Tax Foundation, in 2007, the last year for which statistics are available, filers in the top 50% of AGI paid 97.11% of federal income taxes. And the top 1% of income tax payers paid more than the entire bottom 95% of income tax payers.

As startling as these numbers are, the disparity between the payers and the pay-nots is even more pronounced. From 2000 to 2006 the number of filers with no tax liability after taking credits and deductions rose by 57%, to 45.6 million filers. In 2009, it is estimated that these zero-liability returns will make up over 40% of all returns filed.

With 40% percent of "taxpayers" paying no taxes, is there any surprise these free riders care nothing about the debt-laden millstone they are fastening around the necks of current and future generations?

EG