The United States Government is in debt—so deep in debt that it comes to approximately 117% of GDP. For the last fifty years, the annual deficit has averaged about 3.5% of GDP each year. However, the Congressional Budget Office has projected that this metric will rise to about 6.1% a year for the next decade. If this comes to pass, the federal debt will likely rise to about 250% of GDP by 2050. The question of sustainability should be paramount. But another question all too often takes its place. Who feels the burden of the national debt?
Brought About By Federal Deficits: The culprit is the U.S. Congress itself. The massive debt is a cumulation of many, many years of deficit spending. The last time the federal debt was zero was in 1835. The last time the federal budget was balanced was 1998-2001, courtesy of the William Clinton Administration. The previous time the federal budget was balanced was 1969, courtesy of the Lyndon Johnson Administration. In the meantime, the debt has continued to grow, and grow, and grow. Budgetary magic tricks are done regularly to render the appearance of fiscal responsibility, but the only way to make the debt retreat is for the federal government to spend less than it takes in. For the congress, this means to run a fiscal surplus to avoid new debt and use the extra money to pay off existing debt without rolling it over. The greater the debt, the more federal tax that’s needed to pay just the interest on it.
The Debt Ceiling: In the early days of the republic, congress would vote each time a bond issue was required for any reason. As the frequency of the votes increased, congress established a blanket to allow debt to approach a certain amount without taking another vote. When this debt ceiling was reached, debate would begin on how much further debt was required. During wartime the ceiling went up more rapidly, but now we’re seeing it go up during peacetime, albeit in connection with a pandemic. Other countries have their own methods of managing their debt, but in America it always comes down to a political solution. This political posturing is taking place currently in Washington as a new debt ceiling would be required to avert defaulting on existing debt or spending obligations by June 1. This debate could get to be more intense the closer to the deadline for default.
The Fourteenth Amendment: The Fourteenth Amendment to the U.S. Constitution was ratified shortly after the end of the Civil War. Among other things, the language states: The validity of the of public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations, and claims shall be held illegal and void.
This amendment amounted to housekeeping after the war ended, but it states in plain language that the validity of the debt shall not be questioned. The major question here is, in the event that the congress cannot reach an agreement to increase the debt ceiling, it would force a default of bona fide debt that appears to be in violation of the 14th Amendment. If that point is reached, does the President of the United States have the authority to act to prevent the debt from being questioned? This issue may arise if in fact the congress cannot reach agreement in time to prevent a default. It raises legal issues that could result in court challenges however.
The Draconian Solution: In order to maintain a $31.4 trillion debt, the federal government must attract a huge, and ever increasing, amount of money from the private sector that otherwise could have been used for investment purposes. This impacts productivity in the economy and consequently economic growth. There is the further risk that foreign investors in particular will pull their money out for investing in other economies. As the appeal for buying U.S. Government debt diminishes, what would happen? Some time ago I asked this question to my college economics professor who said, “I don’t know, I guess it would mean oppressive taxation.” Think for a moment about those last two words—oppressive taxation.
The Way Out: The way out of the astronomical federal debt situation is the same as the way in—congress must act on it, and in a responsible manner. This applies to both political parties. One party likes to spend excessively while the other one likes to cut taxes needlessly. Each party will blame the other for the country’s fiscal problems. Both parties will claim that their option will work the best for the economy. Both options supply political candy to their respective constituents, but both options also contribute to the debt. Therefore, when it comes to fiscal responsibility, both parties need to show restraint. As the congress and administration changes from one party to the other it seems as though there is a contest to see who can spend the most, or who can cut taxes the most.
Conclusion: The concept of the debt is dutifully debated by politicians, but is the average citizen concerned? If not, who then would feel the burden of the debt? To own a house, a homeowner usually needs a mortgage that keeps him indebted for at least 30 years. To own a car, a motorist usually needs a car loan that can last nearly as long as the useful life of the car. To make ends meet, families usually have credit cards with balances as high as $10 thousand. Corporations often have debt that runs sometimes as high as 90% of their assets. Family debts can be a major bone of contention and causative factor in divorce. College debts running into six figures can leave students graduating with a personal debt that could take even those with the best frugality measures decades to recover from. Every individual needs to decide for themselves just how much debt they can live with. But the federal debt we all must live with.
Sources: In God We Bust, The Economist, May 6th, 2023.
Encyclopedia Britannica, Amendments to the U.S. Constitution.