With All These Taxes, Why Is the U.S. Getting Deeper in Debt?

Americans know that April 15 is usually Tax Day—the day our tax forms and payments are due. This year, though, because Washington, D.C. is celebrating Emancipation Day then, everyone gets until April 18 to file.

Some Americans also know that April 12 was Tax Freedom Day this year—the day that marks how long it takes for the average American tax burden to be paid. In other words, this year Americans needed to work more than three months just to pay the federal, state and local taxes for the year.

According to the Tax Foundation, “Americans will pay more in taxes in 2011 than they will spend on groceries, clothing and shelter combined.”

But sadly, all those taxes are nowhere near enough! The Tax Foundation also notes: “If the federal government were planning to collect enough in taxes during 2011 to finance all of its spending, it would have to collect about $1.48 trillion more, and Tax Freedom Day would arrive on May 23 instead of April 12—adding an additional 41 days to the nation’s work for government.”

Unbalanced

Many state and local governments are facing severe budget problems too. But the big difference is they have to balance their budgets, so the pain is immediate. The federal government has had years of practice in putting off painful decisions for the future.

This has only been possible because of the great blessings the United States has enjoyed. Its strong and diverse economy and long track record of repaying debt has convinced lenders that it is a safe bet to loan to the U.S. Treasury. At least so far.

No one could imagine the United States defaulting on its debts. Except that now every time the debt limit is reached, the battle to increase it has become harder. And this draws attention to how unsustainable the current budget gap is. Time magazine graphically displayed President Obama’s 2012 budget, showing $2.6 trillion in income and overspending of $3.7 trillion (April 18, 2011, pp. 28-29). Try asking your bank for a loan to spend 42 percent more than you’ll make this year. And hope they don’t consider that you have been and are planning to spend more than you make every year!

Raising our credit limit?

CNN reported April 13 that the U.S. is within $81 billion of hitting the current debt ceiling of $14.294 trillion! But this fluctuates daily, and the estimate is that this self-regulated credit limit will be reached by May 16.

However, given how devastating a default on America’s debt could be, Treasury Secretary Timothy Geithner “said that if the debt limit is not increased by May 16, the Treasury would employ a range of extraordinary measures to prevent defaulting on loans. He’s estimated that those measures could only buy roughly eight weeks—‘meaning no headroom to borrow within the limit would be available after about July 8, 2011.’”

After narrowly averting a government shutdown over the current budget, it seems Washington is more focused on dealing with the deficit.

Two plans

House Budget Committee Chairman Paul Ryan unveiled his proposal April 5. It’s a plan to, over 10 years, “cut $6.2 trillion in spending compared to the President’s proposal” (Time, April 18, 2011, p. 28). His plan also includes lowering taxes, so the net effect is supposed to reduce deficits $4.4 trillion.

President Obama responded with a new plan to “cut $4 trillion in cumulative deficits within 12 years through a combination of spending cuts and tax increases” according to Bloomberg (April 13, 2011).

President Obama said, “We have to live within our means, reduce our deficit, and get back on a path that will allow us to pay down our debt. And we have to do it in a way that protects the recovery.”

Throwing around numbers like $4 trillion or $4.4 trillion can sound impressive, and the cuts envisioned would truly be painful. But sadly, even if followed, both plans may be too little, too late. They are designed to slow the growth of the deficit, but don’t reverse things. The current debt will still be there, and more debt will be added every year. The debt ceiling will still have to be raised, again and again.

“Over the next five years, the administration forecasts the government will pile up a cumulative deficit of $3.8 trillion; over the decade, the cumulative deficits would rise to $7.2 trillion. …

“Most of the reductions proposed by Obama will be phased in to the second half of the 12-year timeframe, to avoid hurting the economic recovery, according to the White House. …

“‘If our creditors start worrying that we may be unable to pay back our debts, it could drive up interest rates for everyone who borrows money, making it harder for businesses to expand and hire,’ Obama said” (ibid.).

No more smoke and mirrors

The United States has been living beyond its means for decades, though the response to the recent recession has greatly accelerated that trend. Near defaults of national debts in Europe bring into sharp focus the truth of the biblical proverb, “The borrower is servant to the lender” (Proverbs 22:7).

Will it be America’s turn soon? Our national sins, economic and moral, have been stacking up; and as the Bible says, we will reap what we sow (Galatians 6:7). If you are brave enough, consider the blessings and curses God outlined in Leviticus 26 and Deuteronomy 28. Make a personal choice for the way that produces the blessings. And pray that the nation, and the world as a whole, will soon choose God’s ways as well. Please pray fervently, “Your kingdom come” (Matthew 6:10).

Read more about that Kingdom that will resolve this world’s dilemmas in our new booklet The Mystery of the Kingdom.