Solving the Debt Crisis for the United States

The crisis of the debt is due to the fact that the federal debt continues to increase and that it is so large compared with our GDP.

As the saying goes, the first step in getting out of a hole is to stop digging. Thus the government must move to bring revenues more nearly in line with expenditures. That can be done by cutting expenditures or by increasing revenues.

Obama has probably made a good start on cutting expenditures by withdrawing troops from Iraq and planning for withdrawing troops from Afghanistan. Unfortunately his administration was only partially successful in its efforts to stop inflation in health care entitlements, and it may be that entitlements will have to be cut as part of the savings. It would seem that discretionary funding will also have to be cut.

As has been so clearly obvious in the negotiations of last year, revenues can be increased by raising taxes and/or by closing loopholes (or as others may view it, by cutting aspects of tax expenditures). I would suppose that making taxes somewhat more progressive would be appropriate.

If the GDP increases faster than the debt, obviously the ratio of the debt to GDP decreases. There are things that the government can do to stimulate the economy over the long run, such as supporting investment in education, encouraging technological innovation, creating a strong infrastructure, and providing appropriate government services. In cutting federal expenditures care should be taken not to do so in ways that would cut growth of the economy and thus be counterproductive.

How about giving a tax break to encourage repatriation of profits that corporations have earned abroad and are holding there. Apparently there is a trillion dollars of those funds. If they were to be invested, they would stimulate economic growth. If they were spent on consumption, they would stimulate demand and help return the economy to full production.

The government can also print money, and do so in such a way as to increase inflation. A modest rate of inflation would seem to be compatible with economic growth and would not lead to excessive interest rates.

In the early years of the United States, governments sold land. It still owns 650 million acres of land. Perhaps the government should go back to selling land, or perhaps to selling long term leases on land.

There are other things that the government can sell. For example, it could sell facilities or equipment that it now in excess or that becomes unneeded as there are cuts in federal expenditures.

How about selling citizenship? If it sold the rights to immigrate to the United States to a million people at $250,000 per person, it would raise $250 billion. Admitting wealthy people might encourage them to invest in this country, promoting growth. It might also generate more tax income for the government.

Source: Federal Lands in the U.S.