Matthew Green’s recent column conveniently overlooks the enormous costs of federal spending policies and ignores the long-term strength of growing the economy from the bottom-up (Get real about economy, 2/21/10). To get serious about fixing the economy, entitlement programs need to be drastically reformed and a climate for dynamic economic growth needs to be re-established in the United States.

There is no question that the national debt must be eliminated, but we need to know what the root causes really are. While Green blames the Bush tax cuts and the War on Terror for part of the $12.4 trillion of national debt, he doesn’t mention the exploding unfunded obligations to Social Security and Medicare, which accrue an incredible $65 trillion to total U.S. liabilities, according to a recent report released by the U.S. Treasury. The scope of the problem is much worse than Green admits, and his proposed solutions do not have the muscle to overcome it.

Raising taxes won’t dig us out. Starting today, the government could force a 100-percent tax rate on every good and service made in the United States for four and a half years (assuming 2009 GDP), and still not have enough revenue to wipe out the debt. And any substantial increase in personal income, corporate, capital gains, sales or inheritance tax rates inevitably leads to lower revenue over time, as greater costs discourage economic activity. This theory was popularized by Nobel Prize-winning economist Arthur Laffer. Large corporations and wealthy individuals, who are always targeted for the next tax increase, are also the groups most capable of relocating to countries where friendlier tax rates exist. That throws the ultimate tax burden on middle and lower-class citizens.

More government spending prolongs the pain. When the government spends $787 billion (as it did in last year’s stimulus bill), it taxes citizens, crowds tight credit markets or simply prints money, inevitably leading to substantial inflation. Sure, jobs may be created in the short term, but these jobs by definition cannot exist without continued government spending, which has spiraled out of control. No net value is created — money is simply transferred from one side of the economy to the other. Keeping that money in the private sector, however, allows investors to fuel the best opportunities in our economy. With more money available for lending and personal investment, the stage is set for wider and more stable growth in the future. This also translates into greater long-term employment. Using the situation of a college freshman as an analogy, if a student’s family can keep more of its own money to begin with, it doesn’t need to take on as much or any debt to send their kid to school.

The only way to conquer the debt is by making government smaller. Its current size is simply unsustainable, and the bills are coming due soon. Entitlements must be changed. Creating personal savings account options for Social Security and health care allows citizens to control their own money. Think about Michigan’s former Promise scholarships — if students had the chance to take a lump sum after college and put it in a savings account, they would certainly have a lot more money than the cancelled checks they ended up with. As more and more citizens live off their own accounts, the demands on federal programs would ease in the coming decades. Streamlined departments and budgets will also improve the government’s long-term structure, but they are not the complete solution.

Massive government revenue growth is needed, but not from repressively higher tax rates. As President (and Democrat) John F. Kennedy claimed, a lower tax burden spurs overall economic activity and federal revenues, stating, “a rising tide lifts all boats.” After lowering the top marginal income tax rate from 70 percent to 28 percent, the Reagan administration oversaw annualized nominal GDP growth of 9.4 percent despite two recessions. With lower spending to match, cutting or eliminating taxes for all paying citizens would unearth monumental productivity. Americans would be free to spend more of their money as they see fit, generating a multiplying economic effect without the long-term debt created by deficit spending.

Our national debt is the result of decades of structurally unsound government. The answer is not another $1 billion stimulus or another entitlement program. We can’t spend like a reckless college student, accumulating debt we cannot manage or repay. The course of government must fundamentally change, or it will collapse under the weight of its own excess. It is not our civic duty to mindlessly pay higher taxes: It’s our government’s duty to manage itself responsibly.

Alexander Franz and Anthony Cerrato are Business juniors.

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