Introduction
The ever changing figures for U.S. national debt and largest budget items (such as Medicare (Medicaid), social security, defense (wars), presented at the website U.S. National Debt Clock, tend to grow far quicker than the figures for the U.S. federal tax and other types of revenue (U.S. National Debt Clock, 2013). Over the period between 2011 and 2013 debt-ceiling crisis reasons for the U.S. total debt appearance and growth, and the ways, which can be employed to reduce the debt, have continuously become key topics for active political discourse. This issue has become even more topical since recent U.S. governmental shutdown, called forth by strengthening of the U.S. debt ceiling crisis. Actually, the debt ceiling had already been technically reached on December, 31th, 2013. Despite legislative changes of the first half of 2013, on August, 26th, 2013 the Treasury of the U.S. informed the Congress that if the debt ceiling was not going to be raised on time, the U.S. would be forced to default on the debt in October. After intense political and economic debate, the Senate of the U.S. passed the Continuing Appropriations Act, 2014, viewed as a resolution, allowing for funding the government until 15th of January, 2014 and getting the debt ceiling suspended before mid-February. Critical character of the situation, its crisis nature and short-term nature of the solution, currently adopted by legislative bodies of the U.S. call forth urgent need to reconsider the reasons of the U.S. debt formation, and the ways it can be cut. For these purposes let us refer to the analysis of the Report by the National Commission on Fiscal Responsibility and Reform called “The Moment of Truth”. Despite the fact that the Report was published in 2010, it is still worth considering issues and recommendations, covered in it. Let us proceed with analyzing reasons for the current debt-related crisis, as they are highlighted in the Report under study and other relevant sources.
Reasons for the U.S. debt crisis
The main idea, which the Report connects with the U.S. debt crisis is that the amounts of spending are rising, while the ones of the revenue are falling short, making the government borrow huge sums every year, so that it can sustain the difference, not leading to the bankruptcy of the U.S. (the National Commission on Fiscal Responsibility and Reform, 2010, 9). In other words, the country currently experiences huge deficit of monetary resources, which is called forth by too significant amounts of spending, appearing against the background of tax revenue crisis, which means that the U.S. currently fails to get enough money with the help of taxes it imposes. Several reasons lie behind current situation. The first one is connected with the tax cuts, which were introduced by President George W.Bush and further extended during the presidency of Barack Obama. Among the legal acts, which provide for relevant changes to the tax legislation, are Economic Growth and Tax Relief Reconciliation Act of 2001, Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and American Taxpayer Relief Act of 2012. Due to the significance of these tax reforms’ influence on the debt, the reforms are currently called national debt-financed.
Another crucial reason to mention is associated with significance of health care entitlements, called forth by reforming Medicaid, especially introducing Medicare prescription drug benefit. The Report claims that if health-related costs continue growing, by 2025 the Government will not be able to finance any other expenses, apart from the ones, associated with interest payments, Medicaid, Medicare and Social Security, so all other activities will require borrowed money to be funded. The next reason to be mentioned is about correlating the growth of spending and U.S. recent engagement in two wars in Afghanistan and Iraq. Especially Iraq war is considered to have been contributing into the growth of the U.S. national debt for a considerable period of time. Additional issues are connected with Barack Obama’s having introduced the economic stimulus package in 2012. In 2010 the package was amended by the agreement between Obama and Republicans, providing for extending benefits for the jobless and reducing payroll taxes. Last, but not least to mention is the impact of recent global economic recession, which started particularly in the USA, triggered by evident overuse of loans and mortgages by stakeholders, operating within different levels at different sectors.
Analysis of the reasons for the U.S. national debt formation and development show that they can be classified into two main categories. The first one encompasses reasons, providing for extra spending (financing war activities in Iraq and Afghanistan, expanding Medicaid program, adding new federally-financed Medicaid benefits), while another one is about cutting revenues (reducing taxes, launching economic stimulus program). It is still important to understand that the deficit is called forth not only by the combination of spending-boosting and tax-reducing factors, but effectiveness of investing costs into particular industries. For instance, it is widely known that other countries, who have fully governmentally-funded healthcare systems, tend to invest less money into healthcare than the U.S., whose healthcare system is based on combination of personal responsibility of stakeholders (insurance) and programs, aimed at assisting low-income vulnerable groups. Taking into account reasons, discussed above, let us continue with analyzing the ways to reduce the national debt, contained in the Report.
The ways to reduce the national debt
The Report contains the ways to reduce the national debt, based on such guiding principles and values as commitment to making the U.S. better, not disrupting the fragile economic recovery, cutting and investing to ensure competitiveness of the U.S., cutting unaffordable spending, protecting truly disadvantaged, demanding effectiveness from Washington, launching the tax reform etc. (National Commission on Fiscal Responsibility and Reform, 2010). The Report offers to tackle the issues of spending and getting the revenue simultaneously by emphasizing six major fields of activities, which are discretionary spending cuts, comprehensive taxation reform, containment of health costs, introducing mandatory savings, launching social security reform, aimed at ensuring long-term solvency- poverty reduction-related results and introducing reforms to budgetary process, allowing getting substantive changes implemented.
These chapters provide for reforming relevant sectors, so that concrete cuts in costs can be made, along with maintaining commitment to the protection of the disadvantaged and marginalized societal groups. Specific recommendations also concern tax reform, simultaneously aiming at modernization of Tax Code of Canada and providing extra revenue to narrow the deficit gap. Extra attention is dedicated to introducing such dimensions as promoting business-friendly environment and jobs’ creation. Typical individual tax plan is included in the Report to illustrate tax burden, planned to be imposed on the citizens by the state.
Process changes are suggested to be introduced in order to ensure stability of the debt, maintaining control over spending and measuring inflation in a correct way.
Conclusion and our solutions
Seriousness of the U.S. national debt issue cannot be overestimated. Analysis of the Report’s provisions led us to several important considerations, regarding possible solutions to the U.S. national debt issue. In our opinion, the most important issue with regard to capping the spending is getting the insight into effectiveness of existing agencies, programs and the ways monetary resources are allocated and used. In this regard particularly joint analysis of institutions and costs can help make decisions concerning the effectiveness of preserving particular agencies, projects and allocations in the future. Furthermore, we would like to offer to launch a comprehensive analysis of existing institutions and work out a plan, aimed at reducing the number of institutions, so that their functions can be distributed among other ones. Particular attention should be paid to cutting the expenses, which relate to ensuring maintenance and functioning of bureaucracy.
As we have already mentioned before, healthcare system of the U.S. is one of most costs-consuming healthcare systems in the world, despite being to great extent supported by individual insurance. We suggest studying advantages of other healthcare models and getting the insight into efficiency of Medicaid in order to create the plan of creating a new cost-effective model for the healthcare. Comparison shows that the same is true about social security system, so similar measures can be taken with regard to it. Savings should be also associated with other spheres of state’s activities, especially foreign affairs and external policy. We cannot help mentioning the fact that we fully agree with the need to modernize and simplify existing taxation system, aiming at reducing the deficit gap and making the system more transparent and efficient. Last, but not least to mention is the strong need to create clear legislative, institutional and procedural framework to ensure actual implementation of changes.
Works cited
The National Commission of fiscal responsibility and reform. The moment of truth., 2010.Web
U.S. National Debt Clock, 2013.Web.
