The U.S. Economy is going through one of the toughest times in its history. While the U.S. Economy may get better and may even boom in the next 10 years, the fact of the matter is that there is no way the U.S. can contain itself with the economic structure as currently constituted.

Race42012.com is one of the best websites for conservative, yet usually pragmatic - not overly hysterical discussion. Yesterday, a frequent commenter who goes by “MWS” posted one of the more honest and thoughtful posts on the realities of what is to be done with the economy. Below is his post, and then a few of the more well thought out comments. What are your thoughts on the ideas?

Suze Orman- a personal finance guru for whom I have tremendous respect- says that much of our personal finance troubles come from our willing belief in lies, and that we can only free ourselves from these problems when we start to acknowledge the truth about our money. It is high time that we as Americans, and as Republicans, stop lying to ourselves about the single greatest economic threat to America. It is high time that we faced the truth about the nation’s debt, and our party’s role in creating it. So here are some facts:

When Ronald Reagan took office, the National Debt was $934 billion dollars. That was about 30% of GDP.

When George W. Bush took office, the Debt was $5.7 trillion. That was about 60% of GDP (that figure actually dropped in the Clinton years).

Currently, the debt is fast approaching $11 trillion, close to 70% of GDP. INTEREST on the National Debt in FY08 amounted to $451 billion, around 20% of government expenditures, and $1500 for every man, woman, and child in America.

The deficit for just the first four months of FY09 is $569 billion. Obama’s “stimulus” hasn’t even begun.

Obama has assured us that we will have trillion dollar deficits for years to come. That means that the next Republican President- even if she wins in 2012- will inherit a cumulative debt around $15 trillion. Considering that the economy is currently shrinking, and that the CBO projects that Obama’s “stimulus” will drag the economy in a few years, that means the next Republican President could well inherit a debt that is larger than our entire annual economic output.

The economic boom of the last 25 years was largely artificial. While the federal government spent around $10 trillion we didn’t pay for, the private sector followed suit. According to the Federal Reserve, Americans held around $2.5 trillion in consumer debt at the end of 2008. That’s about $8500 per capita, and THIS DOES NOT INCLUDE MORTGAGES. Estimates vary, but leverage and falling home values probably have 20-30% of homeowners owing more on their homes than they are worth.

While we are not Argentina, it is worth noting that Argentina had a National debt less than 60% of GDP when they defaulted in the 90s. They still haven’t recovered.

It seems clear to me, at least, that we are on a downward spiral that is going to end very badly. China is already closing off the tap of credit, as they are funding their own $600 billion stimulus. I cannot see how the not-too-distant future does not bring high inflation and high interest rates. And all of these problems don’t even begin to address the looming insolvency of Social Security and Medicare.

And so I am proposing the only heresy graver than questioning Israeli policy in the GOP…

It is high time that we acknowledge that we have both a moral and an economic imperative to raise taxes as soon as the economy stabilizes. It is time to forget everything you learned on the radio about economics. We have a moral obligation to pay our bills.

Now I can already hear the objections. “We are already overtaxed!” That may be true, but we still aren’t paying for what we are spending. And for historical perspective, the top marginal rate in Reagan’s 6th year of office was 50%, and that rate kicked in at a lower income than Carter’s top rate (adjusted for inflation). So for most of the “miraculous 80s” the top rate was 50%. In the roaring 90s, the top rate was 40%. Currently, it stand at 35%. Now I know you don’t raise taxes in a recession, but raising them when the economy stabilizes will not be the end of civilization.

Objection #2 brings in the full force of Talk Show Economics. “Cutting taxes INCREASES revenue, and raises taxes DECREASES revenue.” This is only half true, and only to an extent. Generally, lower taxes stimulate growth, so it is fair to say that cutting taxes raises more revenue than would have been raised at the lower rate had the economy not grown. But it is not necessarily true that tax cuts raise more revenue than would have been raised had the rate not been cut. It depends on what part of the Laffer Curve you are on. And this is only common sense. If tax cuts ALWAYS brought in more tax revenue, then let’s cut taxes to 0.0000000000001% and we’ll have the debt paid off in no time!

We also cannot simply cut domestic spending and get out of this. The time for that is WAY past. Simply cutting “fraud, waste, and abuse” will hardly put a dent in it, despite popular fantasies about government bloat. If you really want to cut spending, make people pay for what the government is spending. If you want to shrink the government, make the voters actually pay for their government. Stop the free ride.

So what does this mean for 2012? I don’t expect any Republican to have the guts to propose a tax increase, no matter how high the debt. So I would look to a candidate who showed real leadership when faced with a deficit. Any knucklehead can cut taxes and run up the debt. That’s easy. Shoot, Bush could do it. I want to see a candidate who made tough choices that actually closed the gap, whether in the House, Senate, or Governor’s mansion. I want someone who was willing to do what needed to be done.

Folks, it’s not 1981 any more, and we can’t promote the same policies that made sense in 1981. We can no longer afford the Empire. We cannot afford all of the good things that government can do for people, and we cannot afford tax rates that do not pay for what we spend. It is time to cut spending, and raise taxes. The 25 year bubble has popped. We can’t fake it any longer, and the longer we try the worse it is going to be. It is time we stopped lying to ourselves about money. Let the Era of Austerity begin.

-Matt Sanders

Comment, Matt C.

Kind of yes, kind of no.

I agree that we as the GOP must take full responsibility for our hand in creating the current deficits and debt. But just raising taxes will NEVER solve the problem because no matter how much extra money the government takes in, it will spend it on something else and create even larger deficits. Hundreds of years of history, with only a few that had balanced budgets, bear this out.

We absolutely must decrease domestic spending – and here’s the rub: we’re not going to be able to make a dent just by talking about discretionary spending. We need to take on welfare – Medicare, Medicaid, Social Security, Food Stamps, etc. Those social welfare programs eat up well over 50% of our federal budget every year, leaving us little to work with and showing just how ridiculous focusing on “pork” really is.

Here’s my plan, and I’ve been developing it for quite some time now:
• Institute a 1% federal sales tax applicable to every good and service purchased. Include in the legislation that the total revenue from this tax must go directly to paying down our national debt, and that when the national debt hits zero, the tax is automatically eliminated with no opportunity to reinstitute it unless deficit spending occurs – and only then with a supermajority vote.
• Pass a balanced budget amendment requiring every budget submitted to Congress to be balanced except in the case of national emergencies, such as war or Katrina-like national disasters.
• Completely and totally privatize Social Security. The idea that the federal government is involved in a retirement program is philosophically ludicrous, and even moreso when you see that the average rate of return on SS investments is less than 2%. Sell it to the American public as a X years-long phase out plan and that they are getting more of their money on every paycheck to put in a retirement account of their choice – more money in the hands of more people, giving them more freedom and more choice! With the right salesman (or woman) this could be a winner.

Just eliminating the national debt and Social Security frees up over 33% of our total federal budget, and it heads off the impending fiscal doom of social security going broke and costing us trillions upon trillions of more money. The next step then would be to massively reform the rest of the welfare programs like Medicare and Medicaid, which currently take up another 25% or so of our federal budget and are threatening to, just by themselves, increase to the point where spending just on those programs will be larger than our entire current federal budget. That is the part of the plan I’m still working on…

Comment: MWS

Oh, I forgot a couple other things, too - privatize the Post Office, which loses money every year they’re in existence. There’s probably a slew of entrepreneurs that would jump at the chance to open a mail delivery company, and I’ll bet you anything they’ll do it more cost effectively than government workers.

Also, privatizing Social Security frees up billions of dollars (if not more) of business money, since companies will not be paying half of every single employee’s SS taxes any longer — allowing them to invest in technology, more jobs, etc. It could lead to a huge economic boom.

Comment: Kavon W. Nikrad

Amen a thousand times Matt C.

Tax cuts are not the problem. The three most infamous supply-side tax cuts: the Kennedy Tax cuts, the Reagan Tax Cuts, and the Bush Tax Cuts, all resulted in INCREASED revenue. The problem is that Government has never cut SPENDING except for a few year in Reagan’s first term and for a few years in the 1990’s.

The idea that placing additional an tax burden on job creators and American families will result in more prosperity is ludicrous, quite frankly.

This is where “The Old Man” was right. Many ridiculed his constant harping on Earmarks and Pork Barrel spending during the campaign. But let’s give credit where it is due, he was right—it is the spending that is killing us.

Comment: MWS

“Tax cuts are not the problem. The three most infamous supply-side tax cuts”

I agree they are not the problem, in and of themselves, but when we are so far in hoc, they become part of the problem.

(KN) “The idea that placing additional an tax burden on job creators and American families will result in more prosperity is ludicrous, quite frankly.”

To clarify, the purpose of tax increases would not be to create prosperity, but to avoid disaster from the mountain of debt. That’s why I tagged it the “Era of Austerity.” It’s not so much about artificially creating boom times anymore through buying what we cannot afford, but heading off catastrophe by paying for what we already bought.

And that is just a few of the comments left on the post, I encourage you to go read through them. As for the content, I do not agree with everything they all wrote. However, most of it makes sense, I especially am intrigued by the 1% national sales tax that is strictly for paying off the debt and once the debt is back to manageable the tax is gone, getting rid of social security, and privatizing the post office. Also, a must is consolidating social programs to make them more cost efficient and more beneficial to the public. There is no reason to have 20 different programs for the same thing.

What are your thoughts?