Destined to follow in Greece’s footsteps?

With all the hoopla over the Olympics in London these past two weeks, ask the man on the street about Greece and, no doubt, his response will be, “Oh yeah, that’s where the Olympic Games began.”

But taxpayers should pay more attention to what is happening in modern-day Greece, since there is every likelihood our own nation may be on the same calamitous path if business, community and political leaders do not step in and reverse the course.

What is this problem “we” don’t seem to either know how to fix or perhaps don’t have the will to fix?

The problem is governments at all levels are spending a lot more than they are collecting in revenue. Hawaii has a balanced budget provision — the state cannot spend more than it has in receipts for day-to-day operations — but this is not the case when it comes to the federal government. The federal government is borrowing much of the money it spends to operate. Total spending by the federal government will top $3.8 trillion for the fiscal year ending Sept. 30. At the same time, the federal government is expected to collect only $2.5 trillion in taxes and other forms of revenue, such as customs fees and user charges.

Of the nearly $4 trillion spent by the federal government, about $1.3 trillion is just to keep the doors of government open, funding areas such as defense, education and welfare. That is in addition to mandatory programs such as Social Security, Medicare, Medicaid, federal pensions and interest on the federal debt which top $2.4 trillion. These so-called entitlement programs are similar to the entitlement programs that came under fire in Greece. And when it was proposed that these entitlements be reined in to resolve the financial turmoil, riots broke out in the streets of Athens.

It is amusing to watch candidates promise they will protect Social Security and Medicare when these programs are part of the problem. Certainly, the generous reductions in tax rates and favorable treatment of certain types of income, like capital gains and dividend income, have contributed to the shortfall in tax collections, but then again, would there be such a shortfall if spending could be reined in?

While politicians like to talk about raising taxes on the rich to keep paying the bills while pandering to the great middle class and the poor, it will take more than raising taxes on the rich to pay the bills. All taxpayers need to understand the enormity of the problem; there needs to be a direct relationship between those who pay and those who benefit. When only the “rich” are asked to pay while ensuring lower tax burdens on the middle class and poor, those who don’t have to pay will assume something can be had for nothing.

It reminds me of an evening news anchor announcing a few years ago that local viewers didn’t have to worry about paying for some new program or facility because it was funded with federal dollars, as if those federal dollars were free. He was reminded that those federal dollars are dollars we pay to the federal government.

As noted, the federal government is spending roughly $4 trillion annually and collects only about $2.5 trillion in taxes with about half of those collections from income taxes, a third from payroll taxes and the rest from miscellaneous taxes like the estate tax and fees, such as customs duties and user fees. As a result, the federal government is borrowing about $1.3 trillion to $1.5 trillion annually to fund its operations, make Social Security and Medicare payments and repay the interest on the national debt.

And that national debt? Just how much is it? It amounts to just over $16 trillion and is forecast to rise to more than $26 trillion over the next decade. And you thought Greece had a crisis? Its debt stands at just over a half trillion dollars. In other words, the debt of the United States is 32 times that of Greece. Do you think we have problems? We will if we do not have elected officials willing to step up to the plate and start reducing spending and finding a middle ground in raising taxes.

Like a recovering alcoholic, our federal officials need to admit there is a problem and they are a good part of it, instead of continuously promising constituents more programs can be had and, if elected, they will protect Social Security and Medicare. Rather than making such promises, they need to educate their constituents about the problems and finally admit everyone will feel the pain — no one will be spared, be they rich, middle class or poor. It will mean a cutback in spending and an increase in taxes, plain and simple, or we will be a basket case just like Greece.

Lowell L. Kalapa is president of the Tax Foundation of Hawaii.