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Ramon Martinez develops and presents a thought provoking solution to eliminate the national debt separately from balancing the federal budget.
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Ramon Martinez Lieutenant Colonel, USAF (Retired)
A Thought Provoking Solution to the U.S. Debt and Deficit Crises
By
Ramon Martinez
Lieutenant Colonel, US Air Force (Retired) Strategy, Management, Public Policy, & Insight Consultant
XTek Solutions, Inc.
August 2011 Background The United States spends more money than it collects. The fact that we conflate our debt and deficit with our federal budgetary process complicates and worsens this predicament. Our national debt limit and deficit crises are the result of a system of complex, interrelated, current and emergent set of conditions. Our tinkering and separately tweaking the elements of the U.S. economy and fiscal budget has produced unintended consequences that unjustly tie the noose over our children and grandchildren’s future. Offering a palliative to relieve the symptoms and our anxiety is not the solution to our crises; these sedatives mask and amplify our predicament. We will experience greater pain and suffering for generations to come. The solution goes beyond cutting federal spending, increasing the debt ceiling, or raising additional revenue by way of more taxes. It will be impossible for our government to function well and balance our budget given the current and emerging conditions. Rather, the solution requires identifying, addressing, and managing the underlying causes of our dysfunctional sovereign debt and deficit crises. This paper presents a thought provoking proposal to eliminate the national debt separately from balancing the federal budget. It accomplishes this end-in-view by (a) creating a national debt market to buy and sell national debt certificates that should lead to reducing $1 trillion annually off the national debt over a 16-year time frame; and (b) enacting a 5 percent national debt sales tax generating $850 billion to pay the annual interest on the current national debt. Solving the national debt predicament independently of the federal budget empowers the U.S. to prepare, evaluate and implement a balanced budget that is transparent, accountable and credible to help establish the conditions for the creation of wealth, sustaining healthy growth, building a resilient economy and nation, and meeting the needs of the people.
A Thought Provoking Solution to the U.S. Debt and Deficit Crises
Ramon Martinez
Lieutenant Colonel, USAF (Retired) [email protected]
2
The U.S. Economic Predicament The United States confronts a colossal economic crisis that we can characterize as a speeding runaway spacecraft traveling towards a black hole. Although the U.S. debt is approaching $15 trillion (actually $14.5 trillion), the U.S. maintains an additional $66 trillion in obligations and guarantees; this does not include debts and unfunded liabilities owed by each of the 50 states. Moreover, the national debt increases approximately $6 billion daily. These numbers are astronomical and almost beyond comprehension. Based upon the current interest rate, the U.S. pays $700 billion annually on the current interest owed on the national debt. With the U.S. presently collecting over $1.1 trillion in income taxes and an additional $1.1 trillion from other tax revenue, the U.S. generates a total of $ 2.2 trillion annually. Since one third of U.S. tax revenues goes toward paying the interest on the national debt, this means the government should have only $1.5 trillion to spend on its commitments. Without any fiscal changes, U.S. commitments for spending in 2011 will be over $3.8 trillion; this strongly suggests that the U.S. is creating an annual deficit of $1.65 trillion. Therefore, the national debt is really approaching $16 trillion and we have in view another imminent crisis. Some Additional Facts The current population of the United States is over 310 million. There is an estimated additional 50 million people with legal residence or undocumented in the U.S. The documented gross national product (GNP) of the United States is over $15 trillion. The U.S. has an underground economy of illegal and unreported income from the production and sales of legal goods and services that is estimated to be approximately $2 trillion. This massive underground economy creates the adverse impact of taxable economic activities not being reported, collected, and generating revenues for the U.S. federal budget. The U.S. population to national debt ratio equates to every citizen, regardless of age, owing $50,000 as their percentage of the national debt. What We Must Stop and Start Doing The government’s tried and true conventional methods, which include maladaptive policies and offering perverse incentives, encourage the wrong economic behaviors and can’t solve crises of these epic and pan-generational proportions. The conditions have changed, and the more prudent, transformational course of action is to redesign and restore our budget to align with the current and emerging 21st century conditions and opportunities. This translates into ending our learned helplessness and taking action now to create a budget that works for all Americans.
A Thought Provoking Solution to the U.S. Debt and Deficit Crises
Ramon Martinez
Lieutenant Colonel, USAF (Retired) [email protected]
3
National Debt Certificate Program The solution is to use private and public monies to eliminate our national debt. We propose reducing $1 trillion off the national debt each year during a 16-year period, which is doable, and totals $16 trillion. The U.S. can accomplish this by buying and selling national debt certificates through a national debt market. This should lead to the market creating wealth to reduce the national debt. First, in order for the plan to work, Congress would have to immediately freeze the national debt at $16 trillion. Second, since the U.S. population-to-national debt ratio equates to $50,000 per citizen, the U.S. would issue a National Debt Certificate (NDC) to every citizen declaring that the bearer owes $50,000 to the federal government. Third, the person or entity that pays the entire face value of the NDC would receive special tax credits for a total of 7 years against their future income. Fourth, instead of the face value being $50,000, the deductable income amount would be $100,000 during the first year. The certificate value and deductible income amount for years two through six would be the face value of $50,000. The face value and deductible income amount would again be $100,000 in the final 7th year. Fifth, all certificates would be able to be bought and sold in a national debt market. Sixth, individuals would be able to purchase the NDC tax credits using their Individual Retirement Accounts (IRA); and individuals would not be penalized for using their IRA. Seventh, the revenue generated from the NDCs would be strictly used to pay the $16 trillion national debt. Finally, since the GNP, including documented and undocumented incomes, is $17 trillion, enacting a 5 percent national debt sales tax on all goods and services should generate $850 billion annually to pay the annual interest on the national debt. The federal government would be limited to using the generated revenue only to pay the annual interest on the national debt, and the sales tax decreases as the annual interest on the national debt decreases. The NDC Program is predicated on maintaining on-going balanced budget. Our Fate, Our Choice The U.S. confronts a catastrophe of epic and trans-generational proportions. Our leaders must make crucial decisions about our national debt and budget. Do they continue with conventional methods of tinkering, tweaking, and offering palliative medicines that treat the symptoms, worsen our conditions, and then
A Thought Provoking Solution to the U.S. Debt and Deficit Crises
Ramon Martinez
Lieutenant Colonel, USAF (Retired) [email protected]
4
leave it up to fate? Or, do they take transformational action that chooses a better future for our children, grandchildren, grandparents, and us by establishing the conditions for the creation of wealth and the development of a resilient economy or nation? The conventional method will not work. However, transformational action offers us the best opportunity to change our predicament into a successful outcome. We can and will succeed by managing the national debt separately from the budget. Creating a national debt market to buy and sell national debt certificates using private monies and providing tax credits while enacting a 5 percent national debt sales tax should lead to eliminating our $16 trillion national debt, paying the annual interest on the national debt, and stimulating the economy. By taking the debt off the U.S. budget, our leaders can develop and present a transparent, coherent and accountable balanced budget that satisfies the needs of the people of this great nation. Implementing such a policy would lead to stimulating the U.S. economy; undoubtedly strengthening U.S currency on the open market; and restoring credibility to the U.S. economy domestically and throughout the world.
