For all of the posturing over the debt ceiling, it’s easy to forget that a statutory limit to federal borrowing isn’t the real issue; the real problem is that the federal government habitually spends more money than it brings in. The fact that the feds are currently collecting less tax revenue than anticipated demonstrates that spending is the one component that government officials can, but rarely attempt to, control. Raising the debt ceiling, again, just kicks the can down the road towards disaster. The real trick is to cut expenditures, which politicians hate to do because largesse from Uncle Sugar is an effective way to court constituents and buy votes.
Maxed Out on Debt
“The debt limit—commonly called the debt ceiling—is the maximum amount of debt that the Department of the Treasury can issue to the public or to other federal agencies,” the Congressional Budget Office helpfully explains. “The Congressional Budget Office projects that if the debt limit remains unchanged, there is a significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations…. If the debt limit is not raised or suspended before the Treasury’s cash and extraordinary measures are exhausted, the government will have to delay making payments for some activities, default on its debt obligations, or both.”
That first two weeks of June is looking more like the first two hours, with Treasury Secretary Janet Yellen warning that “we expect to be unable to pay all of our bills in early June and possibly as soon as June 1.” She said it’s unlikely the government will be able to put off default until June 15, when more tax payments are due. That’s because tax revenues have been less than the political class hoped.
Unexpected Shortfall
“The deadline to raise the nation’s debt ceiling is closer than previously thought because tax receipts in April fell below projections,” the University of Pennsylvania’s Penn Wharton Budget Model noted this month. “PWBM estimates that receipts are running $150 billion below government projections for fiscal year 2023, most likely due to a decline in capital gains income and weakening corporate profit margins.”
Government officials can’t make the American people be more prosperous than economic conditions allow (though the state is good at worsening those conditions so that jobs and profits evaporate). Even if individuals and businesses are scrupulously honest about reporting income and paying taxes (and there’s always a gap when people think government claims too much), that means there are no guarantees when it comes to collecting revenue. To balance the books, politicians can hope the tax system will yield more, but they only control spending. And they will do almost anything to avoid cutting spending.
People aren’t blind to politicians’ failings. “Gallup finds between 34% and 38% of U.S. adults expressing a ‘great deal’ or ‘fair amount’ of confidence in President Joe Biden, Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen and congressional leaders in both major parties to do or recommend the right thing for the economy,” the polling firm announced May 9.
Fortunately, there are some online tools that let Americans try their hand at making the tough spending (and tax) decisions the political class would like to ignore.
Build Your Own Budget
First up is The Washington Post‘s budget game. As these online tools go, it’s a blunt instrument that allows little choice for guiding tax-and-spending policy over the next decade. While I was able to substantially cut the projected debt, every possible set of permitted choices leaves tens of trillions of dollars in red ink in 2033. The Post‘s preferred message seems to be that balancing the books is too hard, so we need to raise the debt ceiling.
Federal Balancing Act 2023, from the Bipartisan Policy Center, allows a lot more room for detailed choices by users. You can control spending across Education, Health Care, Defense, and other sectors, and raise or lower taxes on corporations, individuals of different income levels, gasoline, and the like.
By slashing military spending, getting the federal government out of education, raising the retirement age, and eliminating whole areas of spending, I was able to run a budget surplus starting in 2023 and move the federal government 163.2 percent of the way towards a sustainable budget.
Hmmm. Looks like I have some room for tax cuts.
The Debt Fixer tool from the Committee for a Responsible Federal Budget also encourages users to “make the hard budget choices to stabilize debt at 98% of the economy by 2033 by identifying $8.1 trillion of deficit reduction and bring it down to 60% by 2050.” You can even save your choices as a PDF to revisit the issue later.
Again, by focusing on cuts and reducing or eliminating areas of federal activity, I reduced debt as a percentage of GDP to 83 percent by 2033 and 30 percent by 2050.
All of these tools are imperfect. They limit options in ways that can be frustrating—it would be handy to be able to gut certain agencies, or even whole departments. They also make assumptions about costs and benefits that are at best arguable.
Unavoidable Decisions
More arguable, though, are assertions by officials that spending must increase forever without regard for the ability to pay, and that debt must necessarily climb as a result. Worse is the fantasy that the debt limit can be ignored—a ridiculous idea with which the Biden administration is flirting. The federal government must learn to spend no more than it collects, or it will cause massive problems.
“This year, our budget deficit will likely be $1.4 trillion. What’s more, the deficit will reach about $2.8 trillion in 2033. And that’s assuming peace, prosperity, relatively low interest rates, no new spending, and that some provisions of the 2017 tax cuts will expire as scheduled,” the Mercatus Center’s Veronique de Rugy wrote this month in Reason. “That’s $20 trillion in new borrowing over 10 years. So far, Uncle Sam has ‘only’ accumulated $31 trillion in debt over the course of our entire history. But it gets worse fast.”
“Waiting to put fiscal policy on a sustainable course and allowing federal debt to continue to climb would have several effects on the economy,” the Congressional Budget Office cautioned last year. “The high and rising federal debt that CBO projects over the next three decades would have serious consequences for the economy and federal budget, including the crowding out of private investment, higher interest costs, and increased risks of a fiscal crisis and of other disruptions.”
Arguments among the political class over raising the debt ceiling gloss over the indisputable fact that growing federal debt is evidence of officials’ failures to make difficult choices about the limits to government largesse. And the situation is likely to worsen as damage accumulates. Anemic tax receipts (because that’s what government types care about) will become a regular feature as poorer Americans struggle to make ends meet in a hobbled economy.
These independent budget tools, despite flaws, offer important insights into what the federal government does with our money. Politicians may not be up to the job, but somebody needs to take on the tough (or not so tough) choices that have to be made to bring federal finances under control.
The post Worried About the Debt Fight? Make the Hard Spending Decisions That Politicians Won’t! appeared first on Reason.com.
