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A Thought Provoking Solution To The Us Debt And Defict Rm


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Ramon Martinez develops and presents a thought provoking solution to eliminate the national debt separately from balancing the federal budget.

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A Thought Provoking Solution To The Us Debt And Defict Rm

  1. 1. A Thought Provoking Solution to the U.S. Debt and Deficit Crises By Ramon Martinez Lieutenant Colonel, US Air Force (Retired) Strategy, Management, Public Policy, & Insight Consultant XTek Solutions, Inc. August 2011BackgroundThe United States spends more money than it collects. The fact that we conflateour debt and deficit with our federal budgetary process complicates and worsensthis predicament.Our national debt limit and deficit crises are the result of a system of complex,interrelated, current and emergent set of conditions. Our tinkering andseparately tweaking the elements of the U.S. economy and fiscal budget hasproduced unintended consequences that unjustly tie the noose over our childrenand grandchildren’s future. Offering a palliative to relieve the symptoms andour anxiety is not the solution to our crises; these sedatives mask and amplifyour predicament. We will experience greater pain and suffering for generationsto come.The solution goes beyond cutting federal spending, increasing the debt ceiling, orraising additional revenue by way of more taxes. It will be impossible for ourgovernment to function well and balance our budget given the current andemerging conditions. Rather, the solution requires identifying, addressing, andmanaging the underlying causes of our dysfunctional sovereign debt and deficitcrises.This paper presents a thought provoking proposal to eliminate the national debtseparately from balancing the federal budget. It accomplishes this end-in-viewby (a) creating a national debt market to buy and sell national debt certificatesthat should lead to reducing $1 trillion annually off the national debt over a 16-year time frame; and (b) enacting a 5 percent national debt sales tax generating$850 billion to pay the annual interest on the current national debt.Solving the national debt predicament independently of the federal budgetempowers the U.S. to prepare, evaluate and implement a balanced budget that istransparent, accountable and credible to help establish the conditions for thecreation of wealth, sustaining healthy growth, building a resilient economy andnation, and meeting the needs of the people. Ramon Martinez Lieutenant Colonel, USAF (Retired)
  2. 2. A Thought Provoking Solution to the U.S. Debt and Deficit CrisesThe U.S. Economic PredicamentThe United States confronts a colossal economic crisis that we can characterize asa speeding runaway spacecraft traveling towards a black hole. Although theU.S. debt is approaching $15 trillion (actually $14.5 trillion), the U.S. maintains anadditional $66 trillion in obligations and guarantees; this does not include debtsand unfunded liabilities owed by each of the 50 states. Moreover, the nationaldebt increases approximately $6 billion daily. These numbers are astronomicaland almost beyond comprehension.Based upon the current interest rate, the U.S. pays $700 billion annually on thecurrent interest owed on the national debt. With the U.S. presently collectingover $1.1 trillion in income taxes and an additional $1.1 trillion from other taxrevenue, the U.S. generates a total of $ 2.2 trillion annually.Since one third of U.S. tax revenues goes toward paying the interest on thenational debt, this means the government should have only $1.5 trillion to spendon its commitments. Without any fiscal changes, U.S. commitments for spendingin 2011 will be over $3.8 trillion; this strongly suggests that the U.S. is creating anannual deficit of $1.65 trillion. Therefore, the national debt is really approaching$16 trillion and we have in view another imminent crisis.Some Additional FactsThe current population of the United States is over 310 million. There is anestimated additional 50 million people with legal residence or undocumented inthe U.S.The documented gross national product (GNP) of the United States is over $15trillion. The U.S. has an underground economy of illegal and unreported incomefrom the production and sales of legal goods and services that is estimated to beapproximately $2 trillion. This massive underground economy creates theadverse impact of taxable economic activities not being reported, collected, andgenerating revenues for the U.S. federal budget.The U.S. population to national debt ratio equates to every citizen, regardless ofage, owing $50,000 as their percentage of the national debt.What We Must Stop and Start DoingThe government’s tried and true conventional methods, which includemaladaptive policies and offering perverse incentives, encourage the wrongeconomic behaviors and can’t solve crises of these epic and pan-generationalproportions. The conditions have changed, and the more prudent,transformational course of action is to redesign and restore our budget to alignwith the current and emerging 21st century conditions and opportunities. Thistranslates into ending our learned helplessness and taking action now to create abudget that works for all Americans. 2 Ramon Martinez Lieutenant Colonel, USAF (Retired)
  3. 3. A Thought Provoking Solution to the U.S. Debt and Deficit CrisesNational Debt Certificate ProgramThe solution is to use private and public monies to eliminate our national debt.We propose reducing $1 trillion off the national debt each year during a 16-yearperiod, which is doable, and totals $16 trillion. The U.S. can accomplish this bybuying and selling national debt certificates through a national debt market.This should lead to the market creating wealth to reduce the national debt.First, in order for the plan to work, Congress would have to immediately freezethe national debt at $16 trillion.Second, since the U.S. population-to-national debt ratio equates to $50,000 percitizen, the U.S. would issue a National Debt Certificate (NDC) to every citizendeclaring that the bearer owes $50,000 to the federal government.Third, the person or entity that pays the entire face value of the NDC wouldreceive special tax credits for a total of 7 years against their future income.Fourth, instead of the face value being $50,000, the deductable income amountwould be $100,000 during the first year. The certificate value and deductibleincome amount for years two through six would be the face value of $50,000.The face value and deductible income amount would again be $100,000 in thefinal 7th year.Fifth, all certificates would be able to be bought and sold in a national debtmarket.Sixth, individuals would be able to purchase the NDC tax credits using theirIndividual Retirement Accounts (IRA); and individuals would not be penalizedfor using their IRA.Seventh, the revenue generated from the NDCs would be strictly used to pay the$16 trillion national debt.Finally, since the GNP, including documented and undocumented incomes, is$17 trillion, enacting a 5 percent national debt sales tax on all goods and servicesshould generate $850 billion annually to pay the annual interest on the nationaldebt. The federal government would be limited to using the generated revenueonly to pay the annual interest on the national debt, and the sales tax decreasesas the annual interest on the national debt decreases. The NDC Program ispredicated on maintaining on-going balanced budget.Our Fate, Our ChoiceThe U.S. confronts a catastrophe of epic and trans-generational proportions. Ourleaders must make crucial decisions about our national debt and budget. Dothey continue with conventional methods of tinkering, tweaking, and offeringpalliative medicines that treat the symptoms, worsen our conditions, and then 3 Ramon Martinez Lieutenant Colonel, USAF (Retired)
  4. 4. A Thought Provoking Solution to the U.S. Debt and Deficit Crisesleave it up to fate? Or, do they take transformational action that chooses a betterfuture for our children, grandchildren, grandparents, and us by establishing theconditions for the creation of wealth and the development of a resilient economyor nation?The conventional method will not work. However, transformational actionoffers us the best opportunity to change our predicament into a successfuloutcome.We can and will succeed by managing the national debt separately from thebudget. Creating a national debt market to buy and sell national debt certificatesusing private monies and providing tax credits while enacting a 5 percentnational debt sales tax should lead to eliminating our $16 trillion national debt,paying the annual interest on the national debt, and stimulating the economy.By taking the debt off the U.S. budget, our leaders can develop and present atransparent, coherent and accountable balanced budget that satisfies the needs ofthe people of this great nation. Implementing such a policy would lead tostimulating the U.S. economy; undoubtedly strengthening U.S currency on theopen market; and restoring credibility to the U.S. economy domestically andthroughout the world. 4 Ramon Martinez Lieutenant Colonel, USAF (Retired)