As the United States begins to recover from the recent significant economic contraction of the past three years, it is obvious that the economic climate of the second decade of the 21st century provides very wide ranging challenges to the US government. As countries from outside the traditional spheres of influence in North America and Europe begin to reap the benefits of free market economic policies, deregulated industries and reduced bureaucracies a significant worldwide economic transformation is taking place in major countries like China, India, Brazil, and Indonesia. The United States faces major challenges to stimulate sustained economic growth, reduce unemployment levels and getting the government fiscal situation under control and in proper alignment. It is obvious that in the very near term, important policy decisions need to be taken by the US government to both restrain expenditures and increase the tax revenue intake. Both sides in Congress have failed to adequately address this situation. The budget equation is very simple. It is:-
Revenue – Expenditures = Surplus or Deficit
What is not so simple and clear cut is the road map to get us to where there is a surplus, or a deficit that does not cause fundamental negative economic implications in the economy. Such implications can be manifested through the weakness in the value of the US dollar, higher inflation rates and higher cost of capital. Therefore it is obvious that any realistic attempt to achieve these objectives; need to address the issue of reduced funding for entitlement programs, which cannot be sustained at present levels. At the same time the Congress needs to look at adjustments in the tax code to generate higher tax revenues from higher income earners. In the medium term the Congress will have to look at a broader comprehensive overall of the system of taxation in the United States. The tax code has become very cumbersome and archaic and it is clear a process of simplification needs to be implemented. We need to ensure that the tax system fulfills two principles, namely raising government revenue effectively and efficiently and secondly facilitating the flow of investment capital into industries and businesses in the 21st Century that will lead to higher economic growth and reduced unemployment, which will also boost the tax receipts. Congress needs to sit down, put the partisanship away and focus on these important tasks. Failure to do so will result in the United States becoming eclipsed economically by China, India and Brazil and we will see a waning of our influence in the 21st Century world.
