The Week Just Past: Cut, Cap and Balance The Budget

Unchecked Spending and Debt is Crushing the Economy

“Cut, Cap and Balance:”

Job Creation Will Remain Challenging In Coming Months

As U.S. Stalls on Trade, EU Expands Exports to South Korea

Two key alliances adrift – Japan and India

A sign of things to come in America?

The Week Just Past: Cut, Cap and Balance The Budget

“The headline in this morning’s Wall Street Journal was telling: ‘Greece Gets New Bailout as U.S. Nears Brink.’

“After decades of profligate government spending, Greece is ensnared in an out-of-control debt crisis.  And it is very unclear that the current European bailout will do enough to rescue the country from its 18-month emergency.

“And this morning, the Wall Street Journal headline puts Greece and the U.S. in the same sentence!   Clearly, this headline came from an editor’s keyboard.  But it speaks volumes about America’s current financial state of affairs.

“For a very long time, the American people have said, ‘Washington, quit spending money we don’t have.’ They’ve also said, ‘Washington, quit borrowing 42 cents on the dollar, much of it from foreigners, and sending the bill to our children and grandchildren.’

“Besides being completely unfair to the generations that follow, the path we’re on has us hurtling toward the most predictable financial crisis in the history of the planet earth.   The $14.3 billion national debt is utterly unsustainable and if allowed to grow unchecked will lead us to become ‘Athens on the Potomac!’

“This week I voted for H.R. 2506, the “Cut, Cap and Balance Act” of 2011.   The legislation would immediately cut federal spending to the levels of 2008 – before all the bailouts and the failed ‘stimulus’ bills. 

“To ensure that the Administration and Congress do not revert to their old deficit spending habits, the bill puts the budget on a glide path to spending no more than 20 percent of our economy.  We cannot allow the size of government to double in our children’s lifetime, which is the course the president has set it upon.

“To ensure that these budget corrections are permanent, the measure requires that Congress pass a Balanced Budget Amendment to the Constitution of which I am a cosponsor.   Every family and small business in New Jersey has to balance a budget.   Do we really think any nation can go on in perpetuity without balancing its budget?  The obvious answer is ‘No.’

“While by no means perfect, this bill is the only existing credible plan that will change America’s unsustainable spending trajectory. This common sense legislation provides a straightforward plan to curb our massive debt and to finally begin to limit spending.

“The Administration claims that the debt ceiling looms and Congress ‘must act’ before August 2.  America pays its debts and default would irresponsible. 

“But all Americans must understand that global credit rating agencies are threatening to downgrade their ratings of America’s bonds EVEN IF we raise the debt ceiling in coming weeks.

“Standard & Poors and Moody’s said the federal government could lose its AAA rating if we fail to bring spending in line with revenue. The AAA rating identifies the United States as one of the world's safest investments and allows it to borrow money cheaply. But if these credit rating agencies downgrade the nation's credit rating, the cost of borrowing money could rise for everyone. 

‘The truth is, we’re at a crossroads.

“We have told the President that we will not support his request to increase the debt limit without serious spending cuts and binding budget reforms.  As we’ve said from day one, we are ready to do ‘big things’ and address the drivers of our debt, but we cannot do it by hiking taxes on families and the very small businesses we are counting on to create jobs.” 

 

Rodney Frelinghuysen

Unchecked Spending and Debt is Crushing the Economy

·        Since President Obama took office on January 20, 2009, the national debt has increased by $3.7 trillion.  To put that in perspective, it took the U.S. from 1776 until 1992 to accumulate the same amount of debt that President Obama has borrowed in two and a half years.

·        If nothing is done to cut Washington’s profligate spending, government will grow to 34 percent of the size of our entire economy (GDP) and drive public debt to 187 percent of GDP by 2035.  As a result, interest payments on the debt will increase from 1.4 percent of GDP in 2011 to 8.9 percent of GDP by 2035—an increase of 536 percent. 

·        While many Democrats want to increase the debt without cutting spending, jobs creators know that historic debt will lead to historic, job-killing tax increases.  As Home Depot co-founder Bernie Marcus said on July 20, 2011, “If we don't lower spending and if we don't deal with paying down the debt, we are going to have to raise taxes. Even brain-dead economists understand that when you raise taxes, you cost jobs.”

·        According to CBO, “Growing debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget.”

“Cut, Cap and Balance:”

·        CUT:  Cuts total spending in a manner consistent with the spending levels in the budget passed by the House in April.

·        CAP:  Caps total federal spending on a glide path to 19.9% of GDP—the historic post-World War II average—by 2021.

·        BALANCE:  Requires the passage of a Balanced Budget Amendment before raising the nation’s debt limit.

Recommended Reading: Michael J. Boskin, writing in theMonday Wall Street Journal: “Get Ready for a 70% Marginal Tax Rate.” Some argue the U.S. economy can bear higher pre-Reagan tax rates. But those rates applied to a much smaller fraction of taxpayers than what we're headed for without spending cuts.  Read the article here

Job Creation Will Remain Challenging In Coming Months

Following another week of weak economic data, Goldman Sachs and J.P. Morgan this week cut its estimates for real economic growth in the second and third quarter of 2011 to 1.5 % and 2.5%, respectively, from 2% and 3.25%.

In addition, Goldman says it now expect unemployment to come down only modestly to 8¾ % at the end of 2012.  “Official” unemployment now stands at 9.2 %.

Congress cannot create jobs.  But it must be Congress’ top priority to create an environment in which private sector job creators are encouraged to hire and invest.

“It’s clear we need another approach - a pro-growth action plan that is focused on economic expansion,” Rodney said.  “The plan must address current economic challenges, promote innovation and investment, and help job creators without raising taxes on working families and small business owners.”

The elements of the plan:

1.   Empower small business owners and reduce regulatory burdens.  In other words, get government “out of the way!”

2.   Fix the tax code to help job creators by streamlining tax laws and lower the tax rate for individuals and businesses, large and small, to no more than 25%. 

3.   Increase competitiveness for American manufacturers by opening new markets to American-made goods.  The first step - immediate passage of pending free trade agreements with Colombia, Panama, and South Korea!

4.   Encourage entrepreneurship and growth by modernizing the U.S. patent system and removing barriers to building a first class workforce.

5.   Maximize domestic energy sources by encouragingall forms of energy production.  Diversity of supply represents security of supply.  There is new job potential in each energy sector – renewables, coal, oil, nuclear.

6.   Pay down America’s debt burden and start living within our means, by adopting steep and immediate federal spending cuts enforced by a Balanced Budget Amendment.  

Noted with Interest: As U.S. Stalls on Trade Agreements, EU Expands Exports to South Korea

The Wall Street Journal reported this week that the recent implementation of the South Korea-European Union trade agreement is having an immediate and positive impact on both countries.  In the days following implementation of the agreement:

1.    EU exports to South Korea increased by 16 percent
2.    South Korea's exports to the EU increased 17.4 percent

So, while Washington waits to act on the long-pending, job-creating trade agreements with South Korea, Panama and Colombia, our foreign competitors are rapidly moving to increase market share. 

The longer Washington waits to act on these trade agreements, the more market share and jobs we are losing to other countries

Editor’s Note:  Readers of the eNews recently have noted Rodney’s emphasis on the key deficit and debt negotiations and on efforts in the House to foster private sector job creation. 

However, he notes disturbing trends globally that should give readers “food for thought” if not “reason for concern.”  Here are a few examples:

Iran’s Quest for Nuclear Weapons: “If U.S. intelligence agencies cannot get this one right, what else are they missing?”

Fred Flietz is a former CIA, DIA, State Department and House Intelligence Committee staffer and He writes in the Wednesday Wall Street Journal that the intelligence community is “unwilling” to conduct a proper assessment of Iran’s nuclear weapons program.  Read “America’s Intelligence Denial on Iran” here

Two key alliances adrift – Japan and India

Michael Green and Daniel Twining wrote this week in the Washington Post that The Obama administration understands that Japan and India are critical bookends of a regional strategy aimed at peaceful cooperation with a rising China. Both Japan and India are moving closer to the United States precisely because of their concerns about China’s direction. Yet something is adrift.  Read the article, “Why Aren’t We Working With Japan and India?”  here

A sign of things to come in America?

The Washington Post reported this week, “British army to shrink to smallest size in a century.” 

Look across the Atlantic today and you might spot the U.S. military’s future: