The looming fiscal cliff
We keep hearing about the “fiscal cliff” and its impact on our nation’s and Colorado’s economy. Last month, David Walker, former United States Comptroller General, was here to talk about it at an event we hosted with Colorado Concern and the Colorado Society of CPAs.
What we learned was stunning.
In 1912, federal spending was 2 percent of the United States total gross domestic product. Today it is nearly 25 percent of the total GDP. In addition, about 67 percent of the spending at the federal level is on autopilot—driven by mandates and statutory requirements. We know this issue well, because most of Colorado’s state budget (about 75 percent) is driven by constitutional or legal requirements. That means, in hard times, cutting spending is incredibly difficult because you either have to change federal laws, state laws or the constitution (which requires a vote of the people) to balance the budget.
Even with these compelling facts, context can sometimes shed more light on our financial situation. If you compare the U.S. debt to other foreign nations, and you use the International Monetary Fund’s parameters, only Greece is in a worse debt situation than the United States. Uff da!! (As my grandmother would say.)
It’s the revenue side of the equation that really highlights why we have a debt issue. The federal government collects 18 percent of the total revenue of the United States—but, remember, it accounts for almost 25 percent of the entire amount spent. That’s about a third short of the revenue needed to cover the feds’ expenditures, or for every three things we buy, we can only afford two of them. We can’t fix this situation by simply raising revenue (i.e., taxes) nor can we cut spending enough to solve this issue (because 67 percent of that federal spending is accounted for before it is even collected). We are going to have to make some very tough decisions and be tremendously thoughtful about how we manage this problem from both sides of the fiscal fence.
We believe every sector of our economy will have to do its part to help deliver the best solution for Colorado and the country. As long as politics and rhetoric prevail, we will never get to the right answer. The Chamber is committed to helping find the right solution to address our debt and drive our economy.