Saturday, May 18, 2024

Watchdog Reports U.S. on ‘Unsustainable’ Financial Path

'The idea that you can raise the necessary amount of money by just taxing the rich is a Santa Claus fantasy... '

(Brett Rowland, The Center Square) A federal watchdog reported that Congress continues to spend more money than it collects in taxes.

The U.S. Government Accountability Office’s audit of the federal government’s financial statements found it “continues to face an unsustainable long-term fiscal path.”

In fiscal year 2022, the federal government spent $6.27 trillion and collected $4.9 trillion in revenue, resulting in $1.38 trillion deficit, according to the U.S. Treasury. The federal government budget most recently had a surplus in 2001, one of five times it had a surplus in the last 50 years.

Daniel Smith, an economics professor at Middle Tennessee State University, said overspending at the federal level is no surprise.

“It has been known by economists and politicians for a while that our current level of spending is unsustainable,” he said in an email to The Center Square.

“Our current debt to GDP ratio ranks the United States as one of the highest in the world. Most of the other countries in that category are not doing well economically,” Smith continued. “And, the United States’ debt is under-reported because it doesn’t include unfunded liabilities, which raises our debt to over $200 trillion.”

While the federal budget may have many decimal places, Smith said most Americans understand that “you can’t sustainably spend more than you earn.”

“Debt can be undertaken if it is used for productive investments, but is a bad idea for funding current consumption,” he said. “Most of what the U.S. is spending money on, of course, is current consumption (transfers), not productive investments.”

He also said the federal government is moving toward “a situation where debt service cost can potentially become the biggest budget item of the U.S. government.”

Michael Hicks, director of the Center for Business and Economic Research at Ball State University, said while most Americans understand the problem, “few appreciate the size or source of the issue.”

“For example, we could eliminate all foreign aid and the entirety of the military, and all military retirement pay and all Veterans Affairs benefits, and still not have balanced the budget last year,” he told The Center Square.

“Alternatively, we could eliminate the growth in Medicaid spending from the Affordable Care Act, and all [Temporary Assistance for Needy Families], [Supplemental Nutrition Assistance Program] and other cash assistance programs, and still not balance the budget,” he said.

Hicks said balancing the federal budget would require some combination of deep cuts to Social Security, Medicare and Medicaid spending along with “much higher taxes.”

Donald Grimes, a regional economic specialist at the University of Michigan, put it down to the growth of spending on Medicare, Medicaid, and Social Security.

“I don’t think people understand this, which is why claiming we don’t need to do anything about these programs’ cost is so politically popular. Since I don’t think we are going to cut spending on these programs by any significant amount I don’t see any other realistic alternative to solving this future crisis other than implementing a national value added tax,” he told The Center Square.

“The idea that you can raise the necessary amount of money by just taxing the rich is a Santa Claus fantasy. Other countries realized that the only way they can raise the money to pay for these programs is a value added tax, eventually so will we.”

A value added tax, or VAT, is a consumption tax paid at every stage of a product’s production from the sale of the raw materials to final purchase. U.S. states have sales taxes, which are paid by consumers at a product’s final point of sale.

The U.S. Government Accountability Office’s 270-page financial audit also said it can’t opine on the accuracy of the government’s bookkeeping because of ongoing problems. Among the problems: Long-standing financial management issues at the Department of Defense and inadequate accounting for transactions between government agencies.

It further outlined problems with the Small Business Administration’s pandemic relief programs, the Department of Education’s loan programs and $247 billion in improper payments.

An improper payment is one that should not have been made or that was made in the wrong amount. Improper payments include overpayments, underpayments, along with payments made to the right recipient in the correct amount but not in line with regulations.

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