Latest posts by Richard Ebeling (see all)
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Uncle Sam has added nearly an additional half a trillion dollars to the national debt over the past twelve months. According to the Congressional Budget Office (CBO), the Federal government ended its fiscal year on September 30, 2015 with a budget deficit of a “mere” $435 billion. Total Federal expenditures for the fiscal year were nearly $3.7 trillion, while Federal tax receipts came to around $3.3 trillion.
This has now pushed the Federal government’s debt level to over $18.4 trillion. In calendar year 2014, U.S. Gross Domestic Product (GDP) was $17.42 trillion. That means if the American people were to devote last year’s entire national income to paying off the Federal government’s accumulated debt, it would still fall short by nearly one trillion dollars!
America’s Debt Burden will Keep Growing
With an estimated population of around 320 million people, the per capita financial burden of the national debt comes to around $57,500 per person in the United States.
About half of the U.S, population submits and pays some amount of tax to the Federal government. This means that the per capita burden of the national debt for those submitting and paying Federal taxes is almost $122,670 per taxpayer.
Of course, in reality, many pay no or little net taxes to the Federal government, while others pay far more. But this number at least gives a sense of what it would cost each of us, on average, if we were to try to pay off the national debt in one lump payment.
Furthermore, it is only going to get worse. In its most recent estimate, the CBO projects that over the next five years, 2016-2020, the Federal government will add an additional $2.5 trillion to the national debt, and over the ten years, 2016-2025, the accumulated additional debt will be more than $7 trillion.
So the total national debt owed by the Federal government will be nearly $21 trillion in 2020 and about $25.5 trillion by 2025.
This, of course, presumes that the estimates for government revenues and expenditures made by the CBO for the next decade turn out to be correct. But if anything has a relatively high degree of certainty, it is that government ends up spending more than originally projected and planned. So the deficits and debt estimates can easily turn out to be on the low side by the time we reach 2020 and 2025
Spilling Over the Statutory Debt Limit
The statutory debt limited set by Congress earlier in 2015 was $18.1 trillion. The U.S. Treasury Department has been using accounting tricks and funding shuffles to cover additional deficit spending that already exceeds $300 billion more than Congress authorized.
Treasury Secretary Jacob Lew has warned that the accounting gimmickry will run out by the end of October of this year and the U.S. government will not be able to legally meet his financial obligations, thus threatening Federal government will failure to pay its bills.
Not surprising, therefore, both Secretary Lew and President Barack Obama have called for raising the debt limit, or even place a moratorium on any limit on how much the Federal government may continue to borrow and spend over and above what is collected in taxes.
If the President and the Treasury keep asking for increases in the national debt limit, and if Congress, in turn, after handwringing and gnashing of teeth about fiscal irresponsibility, continues to raise that debt limit there will clearly be no end to the deficit spending.
A Frozen Debt Limit Means a Balanced Budget
But there is a simple and straightforward way to bring the fiscal hemorrhaging to an end. Don’t raise the debt limit. In one legislative act, in this case, a non-action, the Federal government will have to operate within the confines of a balanced budget.
With no increase in the debt limit, the Federal government will be legally restrained to spend only what it takes in, in taxes and other revenue sources. This, in itself, makes the case for not increasing the debt limit very appealing.
Of course, this would mean that the government could not cover a part of those expenditures that it has contracted or legislatively committed itself to in previous years. This is what generates most of the outcry about needing to raise the debt limit.
The Congressional Budget Office estimates that in Federal government’s fiscal year, 2016, that began on October 1, 2015, Uncle Sam will spend nearly $4 trillion and collect in taxes about $3.6 trillion, leaving a budget deficit again in the neighborhood of $400 billion.
To stay within the current statutory budget limit during the new fiscal year, all that the Federal government would need to do is to cut spending across the board by about ten percent. Given the mismanagement and waste that virtually everyone admits goes in every bureau, agency, and department run by the Federal government, a ten percent “trimming” does not threaten any of that “cutting to the bone” that the budget busters among both Democrats and Republicans constantly warn about.
Either You Spend Your Money or Government Does
But we should also realize that if the government is prevented from anymore borrowing, it would become crystal clear that the government does not possess an unlimited financial horn-of-plenty from which to satisfy every conceivable ideological and special interest demand for which an appeal is made to Washington.
If any of these demands for government spending above what can be covered by current government revenues were to be satisfied, it would then compel politicians and bureaucrats to tell the American public that which they avoid admitting like the plague: there is an inescapable trade-off between the people spending their own money and government taxing it away and spending for them.
In other words, no longer could there be the illusion of a “free lunch,” in which the Federal government makes it seem that something can be had for nothing, or at less than its real full cost. Every additional dollar of higher government spending above what is currently collected in taxes would require one less dollar left in the hands of private citizens who had produced and earned it, because that extra dollar of government spending would require an extra dollar of taxes taken out of the taxpayer’s pocket.
This would require the citizens and the taxpayers of the United States to ask themselves exactly what it is they want the government to spend money on, and for which they will have to make the hard choice to have less money in their own pockets to pay for it.
In other words, the American people would be reminded that there is a thing called “scarcity,” that the resources and financial means to obtain all that we would like to have is limited and insufficient relative to our wants and demands for things.
Balancing the Budget Means Accepting Trade-Offs
We each make such trade-offs and hard choices in our own personal, daily lives. Out of our take-home pay we decide whether we are willing to sacrifice going on that desirable but more expensive vacation so to put more money in our savings account to have the means to repair the roof on our home or to have more money put aside to pay for our child’s education when they are ready to go off to college.
Or if we put that new flat-screen television on our credit card, we know it may mean planning to go out to dinner less frequently for a while, since our monthly payment will be higher while we are paying it off, including more interest on that borrowed money.
A balanced budget for the government means having to prioritize what it can afford to spend, and on what – just like you and me.
Would the burden of cuts have to fall on “discretionary” government spending – including defense – if “entitlements” remain off the table? Yes, but that in itself would impose hard thinking on the American people as to whether or not they were willing to face the fact that it is the entitlement programs like Social Security, Medicare, and now ObamaCare that are sucking up the greatest amount of what the government takes in as taxes now and will be even more so in the future.
Deciding on the Role of Government in Society
The American citizenry would be forced to look themselves in the face, and ask whether they are willing to pay the higher taxes to cover these rising entitlement costs, or whether they are finally going to accept the fact that real entitlement reform must be undertaken – including ending government responsibility and involvement in people’s retirement and health care costs altogether through full privatization and real free market alternatives.
These are tough choices, given the increasingly embedded psychology of government paternalist dependency, and the politics of trying to live at other people’s tax expense for things we want government to do for us.
But we either face this reality and reevaluate what is and should be the role of government in society, or we go on “busting the budget” with continuing deficit spending and growing national debt, and face potential financial ruin for ourselves and our children and grandchildren further on in the 21st century.
The inescapable and inevitable choice is ours.