(Released on 6/26/11)
As expected, the major tax increase bills of this past session have been signed into law and the first of the tax increases that consumers will see is the instant rise in prices at the grocery store as a result of the cost increase in all the goods shipped into the state.
While Hawaii taxpayers will have to struggle for the next two years while these general excise tax provisions are suspended, the longer-term challenge lies at the federal level where lawmakers and the administration are struggling to deal with the raising of the debt ceiling. With nearly $14 trillion dollars of debt, the nation is about to come to a grinding halt without an increase in that debt ceiling. Economists, bankers, and other financial wizards all agree that the debt ceiling needs to be raised in order to avoid financial chaos, but some caution that unless Congress and the administration adopt meaningful plans to rein in the government’s spending, borrowing more to keep the government running will merely defer the day of reckoning.
To be sure, one has only to look across the pond to Greece, Spain, Portugal and Ireland which are faced with similar challenges. Each has gone to the well to continuously borrow from the European money markets. And each of these countries has continued business as usual, making no concerted efforts to rein in their government spending, and for those who attempt to reduce wages and benefits for public employees, riots have broken out in protest of the cutbacks.
A couple of weeks ago Greece again found itself with that sinking feeling and turned to its neighbors for help. The Greek parliament passed a vote of confidence for the Prime Minister who had formed a new cabinet a few weeks before to push through a new package of austerity measures that was demanded by the country’s creditors in order to stave off default.
While this vote of confidence temporarily staved of the calling of early elections and a stalled government, the Prime Minister is faced with an even bigger challenge of sheparding through a new slate of austerity measures which include tax increases, wage cuts and state privatization, that are required by the European Union, the European Central Bank and the International Monetary Fund before these bodies release the next segment of aid that Greece needs to meet expenses through the summer.
While Greece seems like another whole world away from the United States, we, as a nation, will soon be faced with a similar dilemma if federal leaders cannot come up with a similar austerity plan that will rein in federal spending. With more than 14 trillion dollars in outstanding debt, the largest portion of which is held by China, raising the debt ceiling without a plan to slow the hemorrhaging of federal spending will soon have the United States in the same position as Greece, Portugal, Spain and Ireland.
And what will it take to curtail the runaway spending of federal dollars? While those who oppose the war on terrorism will point to those conflicts as a reason the nation is in the fiscal bind that it is, one also has to admit that there are numerous federal programs that can be eliminated or made more efficient. Like state programs, each federal program has its own constituency that will put up a wail and cry when the budget ax is lowered on their favorite program. That is what has made it difficult for federal lawmakers to rein in the size of federal spending. But rein it in they must! To allow the frenzied spending spree to continue will put the nation in an even deeper hole.
So while some say that Congress must raise the debt limit come hell or high water, others point out that to do so without some plan to tighten the noose on federal spending is even more irresponsible. Certainly, the debt ceiling will have to be increased to avoid default, but it must be done in conjunction with a game plan that will make some serious and long-term cuts to federal spending. And, yes, everything must be on the table from Medicare to child welfare to space exploration and homelessness.
Others will call for increases in taxes to help close that gap and keep federal programs funded. But that too should not come without some meaningful plan to rein in the pace of federal spending. Locally, that will mean an end to earmarks of federal dollars for local programs, something that won’t get much applause. On the other hand, it may force local leaders to pay more attention to cultivating a better economic and business climate.
The long and short of it is that unless we can put our nation’s finances in order, we may be on a path to financial disaster.