Deficit Needs to be Addressed if Collapse to be Avoided

by Lowell L. Kalapa, Tax Foundation of Hawaii

Well, the Primary Election is over and all eyes are focused on the BIG PRIZE come November, but will voters be salved with the political rhetoric or will they ask the hard questions?

As noted in last week’s Commentary, elected officials at all levels have resorted to spending our hard-earned tax dollars to keep us happy and sated while avoiding the reality that sooner or later they will run out of money or have to raise taxes.  At the state level, where lawmakers cannot spend what they don’t have, they have resorted to finding ingenious ways to raise additional revenues by suspending or eliminating provisions that are designed to mitigate the sting of taxes.  These include provisions such as the suspension of exemptions under the general excise tax for stevedoring activities or contracting and subcontracting.  While not a specific increase in taxes, the suspension of those exemptions has the same effect of raising the cost of living and doing business in Hawaii. 

Similarly, at the county level elected officials have hidden the cost of higher property taxes in the cost of the goods and services we consume by raising the tax rates on nonresidential property like those imposed on our favorite grocery store and the auto shop where we take our vehicles for repairs and servicing.  After all, as county officials argue, those businesses can pass the increased cost of the real property tax on to their customers.  At the same time, they seem to forget that we are those customers.

At the federal level, they just throw another bale of paper on the printing presses and print more money, creating more and more debt that they sell to countries around the world.  As also noted in last week’s Commentary, the debt of our nation is expected to climb by more than 60% over the next ten years rising from roughly $16 TRILLION to more than $26 TRILLION.  Even Social Security, which is meant to be self-sustaining, will begin to show signs of shortfalls and while not as great as originally projected 15 years ago, the shortfalls will continue to grow.  As of 2010, Social Security was paying out more than it was taking in taxes.

So, when candidates proclaim that if elected they will fight to protect your Social Security and Medicare, they are merely ignoring the fact that the system has already been projected to show a deficit.  And while incumbent federal lawmakers preen their feathers that they extended the payroll tax cuts requested by the White House earlier this year, who did they think they are fooling?  Those payroll tax savings came right out of the contributions that were supposed to go into the Social Security system.  

And as the Baby Boomer generation begins to retire and draw their Social Security benefits with a longer life expectancy, it is almost certain that those benefits will surpass the contributions from the active workforce.  Couple that with a shrinking workforce in the future and it is expected what surplus the system has now will be gone by 2033.  With a shrinking surplus, there will less money to invest and generate income.

The long and short of it is that either spending must be curtailed or taxes must be raised.  There is no doubt that it is not an either or proposition, but a combination of the two, that is, spending must be reeled in while taxes must be raised.  And folks, it is not just a matter of taxing the rich, everyone will have to make a contribution.  And that is the other point, politicians have pandered to the poor and middle class figuring they represent the mass of voters who, in turn, expect that something can be had for nothing.  Well, everyone has to understand that it is that very spending that has created expectations beyond our means, expectations that will drive us to the brink just as it has done in Greece, Italy and Spain. 

It is only when taxpayers make the connection between what we enjoy as federal programs and services and who has to pay the tab for those programs and services, will the nation be able to right itself in balancing the 'needs' and 'wants' and align the two.  As taxpayers, we need to recognize that nothing is free and that someone has to pay for those programs.

We can no longer borrow into the future.  We can no longer put the future of our country in jeopardy as the folks of Greece, Italy, Spain and Portugal have done.  The growing deficit is real and it will come home to haunt this generation and those in the future if elected officials don’t get a grip on spending and quit promising voters “a chicken in every pot” when we may not even be able to provide the pot in the future.  So listen carefully to those promises candidates make in the next three months!

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