Addressing the National Debt – The Candidates’ Solutions

With just over a week until our next presidential election the political coverage is confusing and unrelenting. It all seems pretty complex, especially when it comes to figuring out the top-level stances and supporting details. At Prosperion Financial Advisors we believe in simplicity and clarity so we set out to understand the economic policies of both clients in an effort to make some sense of it all.

In looking at the candidate’s websites, one thing is clear – there isn’t much detail available. Fundamentally though, they have different visions for dealing with one of nation’s biggest challenges, the national debt.

The Problem

In 2011, the federal government had an income of approximately $2.173 trillion. They spent approximately $3.818 trillion – going over budget by about $1.645 trillion.1 To put that number in context, $1 trillion dollars could repurchase all the homes foreclosed in 2007 and 2008, or pay for an additional 11 weeks of vacation for every American worker.2

The numbers are too big for many of us to relate to, so I searched for a way to compare our national debt to a family budget. I found an interesting analogy from financial author Dave Ramsey that does just that.1

Household income for this hypothetical family $55,000
Family spending for the year $96,500
Additional credit card debt from overspending this year $41,500
Current credit card debt (before this year’s amount) $366,000

The problem becomes pretty apparent. There is no way the family can expect to keep spending at the rate it is, especially with its comparatively small income. It’s no wonder this election has placed such an emphasis on economic growth and paying down our national debt.

We have two candidates with potential solutions to the problem. Let’s take a look at a few of their ideas.

Barack Obama

Fundamentally, President Obama believes in a few simple ideas according to his website:3

    1. The U.S. is a country of builders – manufacturing is key to jumpstarting our economy.
    2. Asking those making more than $1 million per year to pay more in taxes – 30% as a minimum.4
    3. Ending foreign wars and using the money to build a better U.S. infrastructure of roads and bridges.
    4. Get energy independent by utilizing natural gas and other “clean” energies and ending government subsidies for oil.
    5. Make education a top priority to invest in our leaders for tomorrow with a focus on improving teachers and making education more affordable.
    6. Standardize healthcare via Obamacare in an effort to make it accessible and affordable for everyone.

According to candidate statements and the Congressional Budget Office, this plan would require more than ten years to balance the budget.4

Mitt Romney

Romney also believes in six fundamental principles according to his website:5

    1. Cuts taxes on everyone, especially small business – lower taxes allow small business owners to take more risk.
    2. Cut the red tape – carefully scrutinize economic, environmental and structural regulations in an effort to remove unnecessary ones.
    3. Open trading with new and emerging markets – free enterprise stimulates and encourages growth.
    4. Improve labor policies – keep employment rules simple and consistent.
    5. Invest in tomorrow’s leaders – retrain the workers we have who are looking for jobs and reform immigration to attract the best and brightest from around the world.
    6. Cut spending – build a smaller government

Romney believes his plan will balance our federal budget by the year 2020.4

Conclusion

In many ways, this is an oversimplified view of the candidates’ plans to strengthen our economy. But sometimes it’s important to step back and view each candidate at a very high level in an effort to clearly understand their positions before diving in for more research.

This is one of the most important elections ever. Our national debt continues to rise and if we don’t adjust our course, it could threaten to overwhelm our country.

Whatever decision you make, make the decision to vote.

Greg Horstman

Greg Horstman

For the past 28 years, Greg has worked to provide clients with exceptional financial advice and strategic investment strategies. In the summer of 2009 he partnered with Craig and joined Prosperion Financial Advisors. His service and personal dedication to clients is second to none. Learn more about Greg here.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

Securities offered through LPL Financial. Member FINRA/SIPC


Sources:
1. Federal Budget v. Household Budget: How do they Compare?, Dave Ramsey, 4/28/2011.

2. Visualizing One Trillion Dollars, Mint.com Blog, 3/12/2009.

3. The President’s Plan for an Economy Built to Last, Barackobama.com, 10/29/12

4. A Quick Guide to the Obama and Romney Tax Plans, Tax Foundation, 10/18/12

5. Issues, Mittromney.com, 10/29/12