Uncle Sam Is Broke

Paul Harvey recently ran a computer search to learn what the news publications were saying about the national debt. He came up empty-handed. Harvey says he found voluminous news coverage of the fiscal woes of Russia, Britain, and France. But almost nothing about our own national debt. Yet, the fact is, Uncle Sam is broke--deeper in debt than any other nation. Now, when you and I are in debt, we get out as fast as we can. We know that every dollar spent on interest is a dollar lost for any useful purpose. And on the national level, the dollars lost through interest come to more than $200 billion every year--or about 1 out of every 5 tax dollars. Money that could have gone to productive purposes to bring the economy out of its recession. How can Uncle Sam get out of debt? Unfortunately, most of the standard strategies actually make the debt worse. For example, a lot of lawmakers want to reduce the deficit by raising taxes. But that doesn't work--because when Congress budgets for higher taxes, invariably it goes on a spending spree in anticipation of all that new revenue. And so it ends up spending even more than it takes in, and then sinks deeper into debt. Just last year, for every dollar in new tax revenues, Congressional spending went up $1.83. But there's more. Paradoxical as it sounds, raising taxes actually tends to reduce revenue in the long run. When people are taxed too highly, it puts a damper on their motivation. Why work so hard, people think, if the government is going to take away most of what you gain? And so as taxes go up, production tends to go down. And when production goes down, there's less wealth for government to tax. Tax revenues fall, and the deficit grows larger. It's happened just recently. The 1990 budget agreement included a tax hike to the tune of $165 billion--the largest peace-time tax increase in U.S. history. But did it reduce the deficit? Not one cent. Instead it undercut the incentive to produce, helped push the nation into its current recession, and actually reduced the government's tax revenues. And then, with more debt, the government borrows money from banks and other sources. But that strategy backfires, too. You see, government borrowing leaves banks with less money to lend to the private sector--to companies who want to invest that money in wealth-producing activities, like expanding their businesses and developing new products. When there's less money to invest, there's less wealth created--and less for the government to tax. Its revenues drop, and the deficit increases. It's a vicious cycle. The only way to reduce the national debt is to cut spending to match income. Are we doing that? No: Government spending is at its highest level ever. In the 1993 budget, spending for education, the state department, and housing and urban development will all go up nearly 5 times faster than the rate of inflation. $400 billion will be added to our national debt this year alone. If the government were a private household, its credit rating would be shot. If it were a business, it'd be filing for bankruptcy. Isn't it time to bring the government back to the simple principle of financial responsibility?


Chuck Colson


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