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An interesting article today on the US government debt and how to reduce it. The debt now is 62% of GDP and growing, so there is a sense of urgency to either raise taxes or cut spending–or both.

The problem is that raising taxes is politically difficult, and cutting spending is potentially disasterous. For example, retirement funds will soon fail to cover costs, and health care costs are rising as well.

In both cases, fixing those problems without increasing revenue isn’t feasible. For one, kicking grandma to the curb is not really an option in civilized society. And making adjustments to spending will not happen overnight.

Done right, benefit changes would have to be phased in so future retirees can adjust their plans accordingly. And reducing health care costs requires systemic changes over time.

What are the real costs of high government debt? It is not really explained in the article, but we know that government debt raises interest rates which discourages investment. Higher returns can encourage foreign investment, but at some point the government will have to pay even more for increasing deficits, pushing the burden on to future generations.

Without cutting into retirement or health care, the military is the obvious choice for cuts. That is a problem in the US, but I believe that is the direction the US should consider.


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