America’s Unprincipled Leaders And The National Debt

Sep 21st, 2019 | By | Category: Featured Issues, Politics & Current Events

Ten years ago a protest movement began in America called the Tea Party.  The various tea parties that dotted the nation insisted on a set of demands:  Stop President Obama’s health care law; tame the national debt; and restore responsible government.  Several Republicans were elected under the Tea Party banner.   But, the Tea Party movement is dead, no longer a factor in the Republican Party’s ideology.

The Bible has much to say about careful management of money, property and the future.  I believe it would be correct that Scripture affirms the wisdom of a balanced budget—whether talking about an individual, a business or the government.  The Republican Party used to stand for the principle of a balanced budget, or at least limited government and reducing the deficit.  During the Obama administration, the Republican Party negotiated a reduction in government spending and a “cap” on expanding government programs.  Under the leadership of Donald Trump, the Party just negotiated that away and, incredibly, adding $320 billion in additional spending.  The Republican Party’s $1.5 trillion package of tax cuts for individuals and corporations has pushed the national debt higher than nonpartisan forecasters projected.  During his campaign candidate Trump promised to eliminate the national debt in “in eight years.”  Under President Trump the deficit has exploded, putting our children and grandchildren at risk when it comes to dealing with the financial stability of the federal government.

What follows are a series of facts that detail an imminent financial crisis for our nation.  Each draws on multiple sources listed at the end of this edition of Issues:

  • The Federal deficit—the gap between what the government takes in through taxes and other sources of revenue and what it spends—will reach $960 billion for the 2019 fiscal year, which ends 30 September. That gap “will widen to $1 trillion for the 2020 fiscal year.”
  • The 2019 deficit is 25% higher than it was in 2018 and will continue to rise every year through 2023, according to the Congressional Budget Office (CBO).
  • By 2029, the national debt will reach its highest level as a share of the economy since the immediate aftermath of World War II.
  • The serious drop in revenue stems from a steep falloff in federal revenue after President Trump’s 2017 tax cuts, which lowered both individual and corporate tax rates. Tax revenues for 2018 and 2019 have fallen more than $430 billion short of what the budget office predicted they would be in June 2017, before the tax cut was approved.
  • The national debt could increase if the trade war further chills business investment and consumer spending, which would result in slower economic growth and fewer tax dollars flowing into the national Treasury.
  • The national debt now stands at $17 trillion, which amounts to almost 80% of US GDP, the value of what the economy produces in a year. The highest debt-to-GDP ratio in American history was at the end of World War II, when debt reached 106% of GDP.  But as soon as the war ended, the US government ran a series of surpluses, reducing the national debt by 12%.
  • Perhaps the most important fact about the national debt is the cost of servicing that debt. Interest payments on that debt are expected to account for half of the entire deficit by next year and grow in importance after that.  Indeed, the CBO predicts that interest on the debt will more than triple, from 1.8% of GDP to 5.7% in 30 years.  Foreigners hold 40% of the national debt and that share will only increase.  The cost of the national debt to the US and to its citizens will rapidly increase because the US government will keep borrowing ever larger amounts and interest rates are likely to rise steadily, which means the cost of servicing the debt will skyrocket.
  • “According to CBO estimates, massive deficits stretch as far as the eye can see. Between 2020 and 2029, the projected deficits total $12.2 trillion, which is nearly $1?trillion morethan was estimated in May.  [In other words, an additional $12.2 trillion to the existing $17 trillion national debt.]  In every year after 2020, the deficit exceeds $1 trillion . . . .”  As Samuelson correctly argues, “The actual deficits will probably be higher, even though the CBO projections assume — unrealistically — that there will be no recession during this period and that the unemployment rate will remain near ‘full employment.’”

 

What does all this mean for our nation?   Are our political leaders not aware of how serious the national debt is to our future?  Are they oblivious?  Columnist and economist Robert Samuelson poignantly observes that “It’s getting harder and harder to write these budget columns, because it must be obvious to almost everyone by now that hardly anyone in Washington (or perhaps any place) cares about the budget deficits. The assumption is that we can raise spending and cut taxes forever — or until some crisis occurs that forces us to do involuntarily what we won’t do voluntarily.  There is a bipartisan consensus of sorts that the presumed discipline of balancing the budget — discarding the least useful programs and increasing the least burdensome taxes — has been overtaken by expediency. Why bother to curb budget deficits when there seem to have been few, if any, damaging consequences in letting them continue? Worse, deficit reduction now might raise the risk of recession.  Among Republicans and Democrats, there is little sense of embarrassment about this.”

  • For the Republican Party, the White House is said to be searching for new economic stimulus policies, presumably further tax cuts, to bolster President Trump’s reelection prospects. “This resembles Third World countries that pump up the economy during election years, because that’s what it is.” The president is also pressuring the Federal Reserve to reduce interest rates for the same purpose. Self-serving efforts to boost the economy during an election year are hardly unique to Trump.
  • The Democrats Party is no better. Their presidential candidates have proposed major costly programs: Universal health coverage; free college; subsidized jobs; more child-care subsidies, etc.  The Democratic candidates suggest implausibly that taxing the rich and corporations will cover the costs. This is dubious, but even if it weren’t, it conveniently overlooks the existing trillion-dollar deficit. How is the nation going to pay for these programs?  Samuelson:  “Democrats have been particularly disgraceful in not acknowledging that America’s aging population requires new policies. The elderly are healthier and wealthier than in the past. By and large, Democrats have fed the stereotype of all the elderly as poor and decrepit. A sensible society would have prepared for this predictable future by gradually raising eligibility ages for public programs and reducing benefits for the affluent old. Social Security and Medicare dominate the federal budget and are crowding out other important priorities.  The irony is that both Republicans and Democrats are partially right. Presidents and Congresses of both parties have delayed for so long in addressing these problems that there is no gentle way to push the budget back toward balance without inflicting real pain: deep spending cuts and higher taxes. In the 1990s and early 2000s, a less disruptive approach might have been possible. There were many warnings and almost no action.”

Our present leaders are taking our country on what economist Greg Mankiw calls a “high-stakes deficit gamble.”  This is not only dangerous; it is ethically wrong.  Our leaders are lying to us, in effect saying there is no danger; this is a “free lunch” financial management strategy.  We will never have to pay for this.  Our leaders have abandoned one of the core principles in managing a national economy:  “Prudent governments keep their fiscal house in order during good times so that they have more fiscal room to deal with bad times.”   A prudent society would recognize this and take preventive steps.  But, “we are not prudent. We are just raising the risks, seemingly determined to learn how much we can test the bounds of our ignorance.”  May God have mercy on us!

See Robert Samuelson in the Washington Post (25 August 2019); Stephen Moore in the Wall Street Journal (30 August 2019); Jim Tankersley and Emily Cochrane in the New York Times (22 August 2019); and Valerie Ramey in the Wa       ll Street Journal (24-25 August 2019).

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