Destined to Follow in Greece’s Footsteps?

by Lowell L. Kalapa, Tax Foundation of Hawaii

With all the hoopla over the Olympic competition in London these past two weeks, ask the man on the street about Greece and, no doubt, the response will be, “Oh yeah, that’s where the Olympic Games were founded.”

But taxpayers should pay more attention to what is happening in modern-day Greece, as there is every likelihood that our own nation may be on the same calamitous path if business, community and political leaders do not step in and reverse the course.  So what is the problem that “WE” don’t seem to either know how to fix or perhaps don’t have the will to fix?

The problem is that governments at all level are spending a lot more than they are collecting in revenue.  While Hawaii has a balanced budget provision, that is the state cannot spend anything more than it has in receipts for the day-to-day operations of government, that is not so when in comes to the federal government.  In fact, the federal government is borrowing every single dollar it spends to operate the federal government.  Total spending by the federal government tops $3.8 TRILLION for the fiscal year that ends on September 30th of this year.  At the same time, the federal government is expected to collect only $2.5 trillion in taxes and other forms of revenue such as customs fees and user charges. 

Of the nearly $4 trillion spent by the federal government, about $1.3 trillion is to just keep the doors of the federal government open such as paying for defense, education and welfare.  That is in addition to mandatory programs such as Social Security, Medicare, Medicaid, federal pensions and interest on the federal debt which tops $2.4 trillion.  These so-called “entitlement” programs are similar to the “entitlement programs” that came under fire in Greece.  And when it was proposed that these “entitlements” be reined in to resolve the financial turmoil, riots broke out in the streets throughout Athens and all Greek cities. 

So it is amusing to watch candidates promise that they will protect Social Security and Medicare when these entitlement programs are a part of the problem.  Certainly, the generous reductions in tax rates and favorable treatment of certain types of income, like capital gains and dividend income, have contributed to the shortfall in tax collections, but then again, would there be such a shortfall if spending could be reined in? 

So while the politicians like to talk about raising taxes on the rich to keep paying the bills while pandering to the great middle class and the poor, it will take more than raising taxes only on the rich to pay the bills as all taxpayers need to understand the enormity of the problem.  As was reiterated in previous Commentaries, there needs to be a direct relationship between those who pay and those who benefit.  When only the “rich” are asked to pay while insuring lower tax burdens on the middle class and poor, those who don’t have to pay will assume something can be had for nothing.

It reminds one of an evening news anchor announcing a few years ago that local viewers didn’t have to worry about paying for some new program or facility because it was funded with federal dollars, as if those federal dollars were free.  He was reminded that those federal dollars are dollars we pay to the federal government. 

As noted above, the federal government is spending roughly $4 trillion annually and is collecting only about $2.5 trillion in taxes with about half of those collections from income taxes, a third from payroll taxes and the rest from miscellaneous taxes like the estate tax and fees such as customs duties and user fees.  As a result, the federal government is borrowing about $1.3 to $1.5 trillion annually to fund its operations and to make those Social Security and Medicare payments and repay the interest on the national debt. 

Oh, yes, and that national debt?  Just how much is it?  It amounts to just over $16 trillion and is forecasted to rise to more than $26 trillion over the next decade.  And you thought Greece has a crisis?  Its debt stands at just over a half trillion dollars.  In other words, the debt of the United States is 32 times that of Greece.  Do you think we have problems?  We will if we do not have elected officials that will be willing to step up to the plate and start dealing with this financial crisis by reducing spending and finding a middle ground in raising taxes.

Like the recovering alcoholic, our federal officials need to admit that there is a problem and that they are a good part of it as they continuously promise their constituents that more and more programs can be had and, more recently, that if elected they will “protect” Social Security and Medicare.  Instead of making such promises, they need to educate their constituents about the problems and finally admit that everyone will feel the pain and that no one will be spared, be they rich, middle class or poor.  It will mean a cutback in spending and an increase in taxes, plain and simple, or we will be a basket case just like Greece.

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