By ABC's Alan Kohler
Posted August 01, 2011 08:18:50
There's something quite pleasant watching our politicians arguing about whether Australia should save the planet, while in Washington they argue about whether to allow the government to borrow enough money to pay its salaries.
Not that I'm suggesting Australia's political debate is edifying, it's just that it's a lot more edifying than America's. It's a bit like when I first moved out of home, and the people in the apartment next door used to have all night fights spilling onto the landing and into the street. It was both upsetting and fascinating.
The US "domestic" is a little scarier, since if they choose to default we're all in trouble. But they probably won't. The news out of Washington this morning is that a deal is close and could be finalised today. The humiliation of this episode will last for much longer.
The deal centres around $US3 trillion spending cuts over 10 years, which is a start. The Congressional Budget Office predicts total deficits over the next 10 years at $US9.5 trillion, so if that's all the spending cuts they can manage, then economic growth will need to deliver a lot of extra revenue.
At the heart of the United States' problem, it seems to me, is that rarely - perhaps never - in the history of the world, has a nation bankrupted itself for so little benefit.
Karl Marx once likened the economic impact of war on a country as being "exactly the same as if [it] were to drop a large part of its capital into the ocean", but surely that has never been more true of America's military spending.
In 2010 US defense spending totalled $US689.1 billion, or 4.7 per cent of GDP. It got as low as 3 per cent of GDP in 2000, and has steadily increased since 9/11. It's true that Osama Bin Laden has been killed and there have been no more massive terrorist attacks on US soil, but the US military is mired in a losing conflict Afghanistan, trying to wriggle out, and wasting billions in the meantime.
Worse, America's welfare spending is $US2 trillion a year - equivalent to all tax revenue - yet its health care system is regarded as among the worst in the world and poverty remains endemic.
It's been said that the US combines a left-wing welfare system with right-wing taxes and defence spending, and that's certainly true according to the numbers.
In 2010 total tax revenues were $US2.16 trillion, or 15 per cent of GDP, and total outlays were $US3.46 trillion, or 23.8 per cent of GDP. Two trillion dollars of the spending involved mandatory programs (Social Security, Medicare, Medicaid, Income Security and other programs), and $US1.35 trillion was "discretionary", including defense.
In 2011, the US government is underwater to the tune of $US4 billion a day. On current CBO projections, public debt is projected to be $US23.8 trillion by 2021.
One of the amazing facts being touted in the US at the moment is that Apple Inc has more cash than the US treasury - $US76 billion versus $US74 billion – which raises a fascinating question: how can a nation with such a wonderfully creative and profitable corporate sector have such a dreadful political system and bankrupt public sector?
US businesses have led the world for more than a century and are now in the process of reinventing themselves to lead the world into the digital age. And it's not just Apple, Google, Amazon and Facebook, but the American manufacturing sector is also now automating at world-record pace.
Yet US company tax revenue in 2010 was $US191 billion, an absolutely piddling amount. It's never been more than 2.5 per cent of GDP. Reagan cut it to 1.1 per cent of GDP and it's currently 1.3 per cent.
Perhaps that's part of the answer. Domestic corporate taxes are passed onto the consumers, of course, but America's companies cover the globe and profits are transferred home, where they seem to be taxed lightly.
Meanwhile on Saturday morning, our time, we learnt that the US economy is slowing down again as consumer spending runs out of puff - unsurprisingly since house prices are falling again and unemployment is stuck above 9 per cent.
The negotiations on Capitol Hill will cut government spending into the teeth of a serious economic slowdown, reducing the potential for tax revenue to rise as a result of growth in incomes.
America really does possess the best and worst of capitalism.
Alan Kohler is editor in chief of Business Spectator and Eureka Report, and as well as host of Inside Business and finance presenter on ABC News.