Discuss Question 1

1. FISCAL WISDOM: The federal government’s projected deficits and mounting debt burdens will eventually threaten America’s future position in the world and our standard of living at home if they are not addressed.

ANSWER: True – Our country’s fiscal imbalances represent a clear threat to America’s future standing in the world, the strength and competitiveness of our economy over time, our future standard of living, and even our domestic tranquility in the years ahead.. For a clear, compelling, and concise picture of our nation’s finances, and steps to address them, view the Comeback America Initiative’s .

 

Discuss Question 2

2. FISCAL KNOWLEDGE: The size of the federal government is best measured by the amount of total federal taxes.

ANSWER: False – Measuring the size of the federal government is best done by accounting for how much the federal government spends, not how much it collects in revenue, including taxes. Because in recent years the federal government has consistently brought in less revenue than it spends, calculating the size of government by revenue significantly understates the size of government. According to the non-partisan Congressional Budget Office, in fiscal year 2011, based on spending levels, the size of the federal government was about 24% of the economy (GDP).

 

Discuss Question 3

3. FISCAL KNOWLEDGE: Improved economic growth alone can realistically solve our nation’s long-term fiscal challenges.

ANSWER: False – Even if the economy were to fully recover, it would have to achieve double digit real GDP growth (after inflation) for decades to get us out of our over $62 trillion financial hole. This level has not occurred in the U.S. in the past 70 years, and it is unrealistic to expect it will in the future.

 

Discuss Question 4

4. FISCAL KNOWLEDGE: The federal government has grown from about 2% of the economy in the year 1800, to about 24% in 2011, and is projected to approach 40% by 2040.

ANSWER: True – The size of the federal government relative to the size of the U.S. economy has grown enormously since the days of our Founding Fathers. Of course the world, the U.S. position in the world, and the role of government has also changed significantly, but the future path is not sustainable. In 1800, the federal government made up about 2% of the economy versus 24% today. According to the Congressional Budget Office it is projected to be about 37% in 2040. However, if you count state and local government it would be about 50% of the U.S. economy in 2040, without a course correction. This is clearly not sustainable.

 

Discuss Question 5

5. FISCAL KNOWLEDGE: Allowing significant additional inflation is an appropriate and effective means to reduce our nation’s long-term debt burdens.

ANSWER: False – Inflating our way out is unacceptable. Inflation is a hidden tax and arguably the cruelest tax of all. History has taught us that high-levels of inflation and hyperinflation can destroy the fabric of society, decimate savings, and provide no long term benefit to a country that decides to use the printing press instead of logic. It also tends to harm the most vulnerable in our society the greatest. Importantly, the real threat to our fiscal future relates to Medicare and Social Security obligations which grow faster than inflation and faster than the economy, according to the Bureau of Labor Statistics.

 

Discuss Question 6

6. FISCAL KNOWLEDGE: The total government debt in the United States (federal, state, and local governments combined) measured as a percentage of the economy, is higher than many of the European nations currently facing serious debt challenges.

ANSWER: True – According to the most recent data available from the International Monetary Fund (IMF), published in September 2011, the United States has higher levels of total government debt (federal, state, local combined) as a percentage of the economy (GDP), than many European countries that are experiencing serious debt challenges. Total U.S. government debt was approximately 120% of GDP, higher than estimates for Portugal (110%), Ireland (113%), France (95%), & Spain (76%). Total debt for the U.S. is lower than Italy (131%), and Greece (166%). While the total debt is higher than some of the European countries, the U.S. is certainly helped by the fact that we have the world’s largest economy as well as the world’s largest reserve currency. However, we are not exempt from the laws of prudent finance, and absent reform, we eventually will experience serious debt challenges similar to the above mentioned European countries. For more information on how the U.S. compares to other countries in terms of Fiscal Responsibility and Sustainability, view the Sovereign Fiscal Responsibility Index, developed in 2011 by Stanford University graduate students in conjunction with the Comeback America Initiative.

 

Discuss Question 7

7. FISCAL WISDOM: Effectively addressing our structural federal deficits will require both reductions in future projected spending AND increased revenues (compared to the historical average) as a percent of the economy.

ANSWER: True – A combination of both spending reductions and revenue increases above the historical average will be required to effectively address our structural deficits. Increasing revenues alone is unrealistic. The recent historical average of federal revenue collected as a percentage of the economy is about 18.4%. In order to increase revenue enough to account for projected increases in spending, taxes would have to rise to levels that would be unattainable both politically and economically. For example, according to the Congressional Budget Office federal spending is projected to be about 37% of the economy in 2040. Meeting that level of spending solely through tax increases would require doubling the amount of federal revenue as a percentage of the economy, compared to historical averages. On the other hand, to achieve fiscal balance through reducing spending alone would require cuts to government programs that are politically unrealistic. For example, if only spending cuts are used to balance the budget, and revenues were kept at their historical level of 18.4%, according the Congressional Budget Office by 2024 there would only be enough revenue to pay for Social Security, mandatory federal health programs (e.g. Medicare and Medicaid) and interest on the debt. All other spending would have to be eliminated, which includes such programs as Defense, Foreign Policy, Justice, Transportation, Education, and Homeland Security.

 

Discuss Question 8

8. FISCAL KNOWLEDGE: About 40% of the federal budget is spent on mandatory spending programs, such as Medicare, Medicaid, and Social Security, which are essentially on “auto-pilot” and not subject to the yearly budget decision making of Congress.

ANSWER: False – Actually, the Social Insurance Programs, such as Medicare, Social Security, and Medicaid, as well as other “Mandatory Spending” federal programs, make up more than half—about 55%—of the total federal budget today, according to the Congressional Budget Office. These programs are largely on “auto pilot”, meaning that they are budgeted for according to automatic formulas written into law, rather than being subject to an annual budget limit and the annual appropriations process in Congress. As a result, after considering interest, which is also mandatory spending, less than 40% of the federal budget is made up of discretionary spending—which are those items actually decided upon by Congress and the President each year. These discretionary programs include Defense, Foreign Policy, Justice, Education, Transportation, and others that Americans typically associate with the role and functions of government. Discretionary spending programs also include all of the express and enumerated responsibilities of the federal government included in the U.S. Constitution.

 

Discuss Question 9

9. FISCAL KNOWLEDGE: Most individuals pay more in payroll taxes and Medicare premiums over their lifetime than they end up receiving in Social Security and Medicare benefits.

ANSWER: False – According to the Urban Institute, most people over their lifetime pay less in total payroll taxes and Medicare premiums compared to the amount of benefits they receive from Social Security & Medicare. Individuals pay payroll taxes over their working lives which funds the Social Security trust fund and the Hospital Insurance trust fund for Medicare. Individuals also contribute premiums if they participate in Medicare’s voluntary programs Parts B & D. Under reasonable assumptions, on average, people do not contribute enough over their lifetimes to account for the amount of benefits they receive from both Social Security and Medicare combined. However, the difference is much more significant for Medicare than Social Security, in part because a vast majority of Medicare beneficiaries only pay 25% of the cost of their benefit premium, with the remainder being subsidized by the government.

 

Discuss Question 10

10. FISCAL WISDOM: We can and should solve our nation’s longer-term fiscal challenges solely with spending reductions.

ANSWER: False – A combination of both spending reductions and revenue increases above the historical average will be required to effectively address our structural deficits. Increasing revenues alone is unrealistic. The recent historical average of federal revenue collected as a percentage of the economy is about 18.4%. In order to increase revenue enough to account for projected increases in spending, taxes would have to rise to levels that would be unattainable both politically and economically. For example, according to the Congressional Budget Office federal spending is projected to be about 37% of the economy in 2040. Meeting that level of spending solely through tax increases would require doubling the amount of federal revenue as a percentage of the economy, compared to historical averages. On the other hand, to achieve fiscal balance through reducing spending alone would require cuts to government programs that are politically unrealistic. For example, if only spending cuts are used to balance the budget, and revenues were kept at their historical level of 18.4%, according the Congressional Budget Office by 2024 there would only be enough revenue to pay for Social Security, mandatory federal health programs (e.g. Medicare and Medicaid) and interest on the debt. All other spending would have to be eliminated, which includes such programs as Defense, Foreign Policy, Justice, Transportation, Education, and Homeland Security.