Americans Headtoward a Looming Financial Catastrophe

By Dr. Thomas Patterson |

During her acceptance speech at the Democratic National Convention, Vice President Kamala Harris vowed to “never stop fighting” for the American people and to “blaze a new way forward.” While her rhetoric was powerful, the specifics behind her vision for welfare state enhancements remained vague. Proposals like mortgage subsidies, student loan forgiveness, and free universal preschool floated through the air, yet significant challenges loom.

The underlying issue is clear: resources are dwindling. Not just in America but across advanced economies globally, the reckoning for decades of unchecked social spending is upon us. While American progressives often criticize fiscal conservatives for their concerns about tax rates, economists are highlighting that some high-tax European nations are nearing the apex of the Laffer curve. Essentially, these regions are discovering that raising tax rates may no longer produce the desired revenue.

The political landscape has shifted dramatically over the past century. Campaigns increasingly focus on what government can provide for individuals rather than promoting the collective good. This shift was exacerbated by government responses to crises like the Great Depression and the COVID-19 pandemic. The New Deal, while well-intentioned, did not end the economic downturn, with World War II responsible for the eventual recovery. Unfortunately, it instilled in many Americans the notion of government as a nurturing caretaker.

The COVID-19 pandemic further illustrated this dependency, as self-imposed shutdowns led to economic turmoil. As the immediate crisis waned, government checks continued to flow to many who had not lost income. What began as “emergency” measures transformed into what many view as entitlements.

As a result, the national debt in 2023 has soared beyond 120% of GDP, crossing the historically accepted threshold. Future obligations to beneficiaries are calculated in hundreds of trillions, with no clear funding sources. The demographic landscape compounds these challenges. In the next 12 years, the ratio of working adults to retirees will drop from 3:1 to 2:1, while the segment of the population aged 85 and older will grow, necessitating increased funding. Moreover, emerging security threats add further financial strain.

The options for reducing spending are increasingly limited. Traditionally unappealing tax increases often fail to yield the expected outcomes, as they can hinder economic productivity. Despite higher tax revenues in European countries, their GDP per capita trails behind that of the U.S., even after considering their government services and subsidies.

The era of low interest rates is coming to an end. This shift will escalate borrowing costs, burdening future generations with the fallout of prior spending decisions. By now, the window for simple solutions has closed. Warning signs are illuminated, albeit ignored by both political parties more concerned with electoral success than substantial reform.

Recent recommendations from the General Accounting Office (GAO) for minor adjustments in federal procedures could yield savings of $208 billion over the next decade. The proposals—which include equalizing Medicare benefit payment rates—are non-contentious, offering a potential bipartisan step forward. Yet the prevailing silence from lawmakers is telling.

Numerous academic studies have laid out practical approaches to combat government waste and streamline processes. Yet these suggestions garner little traction, indicating a broader disregard for efficiency both among politicians and the public.

As discussions about democracy intensify, both parties frame each other as significant threats. For political leaders willing to move beyond mere rhetoric, the message is simple: cut spending to safeguard the future.

Dr. Thomas Patterson, a former Chairman of the Goldwater Institute and retired emergency physician, served as an Arizona State Senator in the 1990s, including a stint as Majority Leader. He is also the author of Arizona’s initial charter schools bill.