"… The vast majority of Democrats on Capitol Hill would prefer not to have to do anything on entitlements, would prefer, frankly, not to have to do anything on some of these debt and deficit problems. . . . And what I’ve tried to explain to them is, number one, if you look at the numbers, then Medicare, in particular, will run out of money, and we will not be able to sustain that program, no matter how much taxes go up. I mean, it’s not an option for us to just sit by and do nothing."
– President Obama, July 11, 2011
I agree with President Obama. No matter how much we raise taxes, we cannot avoid a fiscal disaster unless we address the true drivers of our out-of-control deficits – namely, our entitlement programs. The reality is that the federal government doesn’t have a revenue problem. It has a spending problem.
Over the last 10 years, federal tax rates have remained constant, while spending has doubled. Under current tax rates, we nearly balanced the budget in 2007. But recently, spending has surged to post-WWII-record levels even as a percentage of our economy. This spending explosion has resulted in massive, trillion-dollar-plus deficits, casting a pall over our economy that continues to cost us jobs and growth.
Meanwhile, our entitlement programs are growing at unsustainable rates, threatening ever-larger deficits. In 10 years, three categories of spending – Social Security, government-sponsored health care, and interest on our debt – will consume nearly all projected tax revenue. Clearly, this is unsustainable. But we have an even more immediate crisis.
Four weeks from now, our economy will take another huge hit if Congress refuses to act. On Jan. 1, personal income tax rates that have been in place for 10 years are scheduled to rise dramatically. Every American taxpayer will be hit with substantial tax increases, and taxes on certain job-creating capital investments will double and even triple. This is the devastating part of the fiscal cliff that will plunge our economy back into recession and cost perhaps millions of additional jobs.