The deal reached between President Biden and House Speaker Kevin McCarthy to increase our nation’s debt limit was a welcome compromise. It appears to avert our nation’s defaulting on our financial responsibilities and is a step toward bringing government spending under control.
However, it is just a start; and the hurdles ahead are much higher. While the federal government operates differently than a family or business, people are starting to realize that if our nation defaults on its liabilities, everyone in America is stuck with a $95,000 bill. It is worse for taxpayers. Their share is $248,000.
Our federal government is allowed to accumulate debt with a long-term repayment schedule and lower interest rates. On the other hand, individuals, families or businesses must pay their bills every month and pay off loans they accumulate. Even if they postpone controlling spending and run up credit cards, the impact is much more immediate and the consequences much greater. When people reach their credit limits, there is a “hard stop to spending.”
When the feds hit their credit limit, Congress and the president have traditionally come together and raised the borrowing limit. The bottom line is addressing our national obligation should carry the same financial urgency as our personal debt.
Late last year, Reason.com. reported “official estimates from the Congressional Budget Office show that, since January 2021, legislation signed by Biden has set in motion a record $3.37 trillion in new spending, surpassing Trump’s previous record of $3.28 trillion during the 116th Congress.”
In fairness, both Biden and Trump ramped up spending to combat the coronavirus pandemic. When those total costs are tallied, they could surpass $5 trillion. Both presidents did what needed to be done—something the federal government can only handle. However, ignoring massive federal borrowing and spending control is not an option.
America owes $32 trillion (and growing) to lenders including foreign countries that hold U.S. Treasury notes. Collectively, Japan, China, Germany, UK, and other foreign counties own a quarter of the debt. Interest on the debt is $500 billion annually.
The Peter Peterson Foundation reported over the next 10 years, without any changes in current policies, CBO estimates that interest payments will become the fastest-growing component of the federal budget. By 2032, interest costs will triple to more than $3 billion per day.
The problem grows over time because $6 out of every $10 in taxes goes to paying for entitlements, most notably Social Security and Medicare. Entitlement spending increases with higher inflation, as more people retire and as life expectancies are greater.
Compounding the problem is fewer workers are paying Social Security taxes. For example, in 1950 there were 16 workers for every Social Security recipient. By 2011, it dropped to three and is expected to go to two by 2030.
Before any president or Congress launches another new trillion-dollar program they must carefully consider the true long-term impacts on what we owe. Those we elect can’t simply low-ball the money required to run the program long-term by adding sunsets to new entitlements and then assigning new ones when the deadline nears. Realistically, programs never end.
Remember the TV ad where the auto mechanic looks viewers straight in the eye and says: “You can pay me now or pay me later!” The message: if you change your car’s oil and filter every 5,000 miles, you can avoid a disastrous engine replacement later.
The same principle applies to our national debt. Congress and the president must either continue to take steps to control spending and debt before reaching our next debt limit or watch interest payments swallow up more and more of our hard-earned tax dollars and starve needed programs.
Don C. Brunell is a business analyst, writer and columnist. He can be contacted at theBrunells@msn.com.