How To Fix US Debt Without Hurting Fragile Economy
Europe's experience shows that hasty budget cuts can be counterproductive when economies are weak. Despite slashing spending and raising taxes, Britain, Spain, Portugal and Italy have all seen their debt burdens rise. Their economies shrank because of the painful austerity measures, which meant their debts grew as a percentage of gross domestic product, or GDP, the broadest measure of economic activity.
The best medicine for swollen federal debts, experts of all political persuasions agree, is stronger economic growth. A healthy economy means more people are working, earning money and paying taxes; and fewer are collecting federal benefits such as unemployment checks and food stamps.
Already, a slowly improving economy has helped whittle the United States' federal deficit. The deficit peaked at $1.4 trillion at the depths of the Great Recession in 2009 and has been falling ever since. The Congressional Budget Office says it will fall to $845 billion this year if the automatic cuts take effect.
â¿¿ REFORM THE TAX CODEThe U.S. tax system is riddled with tax breaks that benefit everyone from homeowners to oil and gas companies. These tax breaks cost the Treasury $1.3 trillion last year, according to the nonpartisan Tax Policy Center. Economists say the loopholes warp the economy by diverting investment away from projects that make economic sense and into those that are subsidized by tax breaks. Economists and budget analysts say the government could raise revenue and improve economic efficiency by ending some of the tax breaks. Among those calling for ending or scaling back most tax breaks are the Bipartisan Policy Center and former Republican Sen. Alan Simpson and former Clinton administration official Erskine Bowles, co-chairmen of a presidential commission assigned to find ways to reduce the federal debt. Of course, getting lawmakers to end the tax breaks won't be easy. The loopholes are popular. And Congressional Republicans are currently refusing any budget deal that raises tax revenue by closing loopholes.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts