America is facing an economic crisis much more serious than most people want to admit. Basic industries are crashing. Jobs are scarce, and they are less and less well paid even though employee productivity has continued to rise. The stimulus checks are having a positive effect, but the effect will not be lasting. Nor do shots of money like that address the underlying problems that have put us into the mess we're in.

Background

For optimal economic health, a government — just like a household — should live within a budget, not spending more than it brings in, and certainly not going deeply into debt. Lately, this basic tenet of good government has been cavalierly tossed aside by both the current administration and the U.S. Congress.

Income

On the income side of the ledger, total income shown on U.S. tax returns grew every year except one between World War II and 2001. Then, in a new experience for Americans, total income began to slide downward. Since then, contrary to government claims of economic growth, the economy has been listless. Tax cuts of a few hundred dollars a year did little for either middle-class earners or the economy.

The government said that smaller average incomes for five years after the burst of the dot.com bubble should not surprise anyone. As far as I know, they have not made an equivalent prediction about how long the hangover from the mortgage crisis will last — and I think we all know why.

Expenditures

On the expenditures side of the ledger, meanwhile, the federal government has gone into overdrive. Some of the major culprits are spiraling overall Medicare costs, the new Medicare prescription drug plan, the continuing curse of rampant pork barrel spending, and most of all, the wars in Iraq and Afghanistan.

The Debt Crisis

In 2000, America had a surplus. Today we have a debt of historic size. According to an online U.S. National Debt Clock (developed and maintained by Ed Hall at edhall@brillig.com, using information obtained from the U.S. Department of the Treasury and population figures derived from the U.S. Bureau of the Census' Population Clock), on July 31, 2008, the outstanding public debt was $9,540,800,800,552.17. That is an estimated "share" of $31,337.11 for each citizen. Moreover, since September 28, 2007, the debt has continued to increase at an average rate of $1.74 billion per day.

The debt is more significant than its dollar size alone would indicate because

• we must pay a staggering amount of interest on our debt
• retiring baby-boomers will be contributing less and requiring more medical services
• the list of options for ways to reduce the debt is shrinking.

Among those who consider the situation dire is economist Paul Craig Roberts, Assistant Secretary of the US Treasury for Economic Policy in the Reagan administration and credited by many with curing stagflation and the tradeoff between employment and inflation in the Reagan government. Back in late November 2007, Dr. Roberts posted an amazingly prescient online column called Impending Destruction Of The US Economy (available at www.informationclearinghouse
.info/article18787.htm). Roberts discussed what he described as an "economic policy trap" in which Washington policymakers have placed the U.S. economy. An extended quote is given below:

"If the subprime mortgage meltdown is half as bad as predicted, low US interest rates will be required in order to contain the crisis. But if the dollar's plight is half as bad as predicted, high US interest rates will be required if foreigners are to continue to hold dollars and to finance US budget and trade deficits.

"Which will Washington sacrifice, the domestic financial system and over-extended homeowners or its ability to finance deficits?

"The answer seems obvious. Everything will be sacrificed in order to protect Washington’s ability to borrow abroad. Without the ability to borrow abroad, Washington cannot conduct its wars of aggression, and Americans cannot continue to consume $800 billion dollars more each year than the economy produces."

Dr. Roberts went on to argue that if and when foreigners in large numbers start cashing in their U.S. bonds, superpower America would instantly disappear. He found that eventuality likely, given the precipitous drop in the value of the U.S. dollar, and the fact that China and Japan are increasingly turning towards Asia rather than the U.S. as the market of choice for their goods. "Japan and China, indeed, the entire world," he writes, "realize that they cannot continue forever to give Americans real goods and services in exchange for depreciating paper dollars."

What We Must Do

I will be sworn into a U.S. Congress that faces almost unprecedented economic problems — problems that threaten America’s very existence. As much as I would like to offer something that would make everyone happy and comfortable in two years, that is not possible. Recovering from the worst economic mismanagement in U.S. history is going to require sacrifice, discipline, and time. That will not be a popular message, but I am honor bound to tell the American public the truth, and to try my best to see that we do what is required to save this country as we have known it for our children and our grandchildren.

Clearly, we need to attack both sides of the federal ledger. We need to bring in additional revenue, and we need to rein in spending. What we must not do in the process is shoot ourselves in the foot by "saving" money in ways that harm the overall economy, damage our social fabric, sacrifice our children's futures, or compromise our ability to defend our country.

Taxes

The middle of a recession is not the time to raise taxes on middle America. It is the time to equalize the level of discomfort that the tax bite causes for rich, middle-income, and low-income taxpayers. To help make the point, let's look at how our current graduated tax plays out. You will see below that even middle income taxpayers are left with barely enough money (disposable income) to pay for shelter, fuel, clothing, food, and taxes of all other kinds. The very rich can cover the same costs with ease.

• Couple 1, with taxable income of $55,000 pays 15 percent, or $8,250. That leaves the couple with an after-tax, disposable income of $46,750.
• Couple 2, with taxable income of $350,000 pays at a rate of 35 percent (the highest tax bracket we now have), which amounts to $122,500. Couple 2 is then left with $227,500 in disposable income.
• Couple 3, with a taxable income of $700,000 also pays 35 percent, which results in taxes of $245,000 and leaves the couple with $455,000 in disposable income.

It is true, as some complain quite loudly, that the richest 10 percent pay 70 percent of total U.S. income taxes. They rarely acknowledge that paying for basic expenses exhausts a far greater portion of the after-tax income of both lower- and middle-income taxpayers than of higher-income taxpayers. We need to raise the tax rates substantially for the uppermost income levels, who can most afford it. We also need to close tax loopholes that the very rich now use to keep large amounts of income from showing up on that taxable income line. Such tax reform will not punish millionaires and billionaires unduly, nor will it kill their incentive to earn. It will help collect the revenue essential to get America back on track and make the tax burden more equitable. It is also necessary in order to preserve the business environment and the American market that has supported wealth accumulation by our wealthiest citizens.

The situation with corporate taxes is similar, in that corporate tax law is so full of loopholes that large corporations never pay what the tax schedules say. The corporate tax rate has stayed about the same for the last 25 years, and it's far lower than it was in the 1960s and '70s. I will work for a modest increase in corporate tax rates, and more importantly, a major push to close loopholes.

Spending

It is imperative for the next congress to take the difficult path and get wasteful spending under control. We have to take a close, top-to-bottom look at how we are spending our federal money. We can no longer afford the luxury of supporting sacred cow, untouchable programs and agencies. We have to look with new eyes, and we have set up and empower the financial equivalent of a medical triage center. Unneeded, obsolete, and duplicative programs have to be identified and shut down. We also have to scrutinize the effectiveness and efficiency with which relevant, necessary agencies and programs are fulfilling their valid purposes and find ways to improve their performance. If that means making radical changes and taking a program or agency in a new direction that will serve America better, so be it. (There is no better example than the Federal Emergency Management Agency, but No Child Left Behind runs a close second.) Appointment of competent management by a new president is key.

Investing in America

Reducing the enormous debt left by Mr. Bush's government is an absolute priority. Unfortunately, his policies and appointees have also left America's economy little power to earn our way out of the problem. While the tax and spending steps outlined above provide a means for starting down the path to debt reduction — which they will do without inhibiting productivity— our longer-term task is to invest in America. We will see dividends from investment in critical segments of government, but the dividends will not be fully realized for some years to come.

• The dividend of specialized medical care for veterans and a GI bill like that sponsored by Virginia Senator Jim Webb is a workforce less encumbered by wounds, depression, and family problems, and an educated, trained body of ex-soldiers, just as the same kind of reinvestment gave America its edge after World War II.
• Thoughtful investment in new sources of energy will produce long-term dividends of energy self-sufficiency, lowered energy costs, and new revenue streams from the technology developed in the process.
• Investing in our environment will produce attractive, healthy surroundings (which will have a beneficial effect on health care costs), and materials recovered and saved for reuse will not discharged into the environment (which, among other things, will help ameliorate our increasingly serious problems in the areas of overflowing landfills and deep-ocean pollution).
• Universal, high-quality pre-K education will help put new meaning into the phrase "equal opportunity for all." A fully reformed educational system will pay off in terms of a higher percentage of high-school and college graduates who can successfully compete with graduates from other developed countries in science, technology, and business — who can see that America once again leads in product development and delivery.

Implementing the solutions I have discussed above will require time, fiscal discipline, and even personal sacrifices. The plain fact is that we have no choice.