Dealing with debt—federal government edition

Wash. U. College Democrats

A national debt, if not excessive, will be to us a national blessing” – Alexander Hamilton, 1781

If you’ve been following this election cycle (or American politics ever), chances are that you’ve heard someone mention the national debt. It may have been in the context of a balanced budget amendment—the idea wherein Congress would not be allowed to pass a budget which contributed to the national debt—or it could have been used as an arbitrary measure of how well a president grew the economy.

There are many misconceptions over the role which the national debt plays in our economy, so I will attempt to lay out the groundwork. When Congress passes a budget, that budget includes expenditures for every branch, department and initiative of the federal government as well as revenues from all sources of taxation. When the total expenditures are greater than the total revenues, the government must borrow money, taking out loans which it must then pay interest on. Because of this, the larger the debt, the more of our budget expenditures are eaten up by debt payments. Last year this accounted for 6 percent of expenditures, or $223 billion. The more we have to spend on debt payment, the less of our tax revenue can be used on programs here at home such as Social Security, defense, health care and education, and this is the main reason why high levels of debt are problematic. If a policy increases the debt without growing the economy (and the tax revenue base), then that policy is increasing the debt burden and the levels of debt payments on future generations. However, if that same policy contributes to economic growth at a higher rate than it adds to the debt, the increased debt service will be more than canceled out by the increase in revenues.

The problem comes in when people assume that any amount of debt is a problem. Historically, there are two major causes of debt spikes. These have come in the form of wars—when spending is needed for the war effort (World War II was the highest levels of debt as a percentage of gross domestic product our country has seen)—and recessions when spending is required to put life back into the national economy. If Congress was shackled by a balanced budget amendment during WWI or WWII, we never would have been able to join the war effort. The Civilian Conservation Corps and the Works Progress Administration would have been unable to function at a large enough level to help recover from the Great Depression. In current times, we wouldn’t have been able to fund recovery efforts after the 2008 recession and would still be suffering from a depressed economy. Deficit spending is one of the most powerful tools that the federal government has at its disposal to combat crises both at home and abroad. Limiting that for the sake of declaring the budget balanced is nothing more than shortsighted. That being said, the growing deficit is a cause for concern.

The $223 billion dollars spent on debt payments last year could have been the first step in upgrading our nation’s infrastructure, highways, utilities, schools and public transit to modern standards (a $200 billion yearly price tag over five years), something which could have directly helped Americans here at home. We must be willing to make the same hard choices that were made after WWII and insist that everyone pay their fair share of taxes. We must close loopholes such as the ones exhibited in the recent Panama Papers scandal, which allowed U.S. citizens and businesses to hide assets and avoid paying $124 billion in taxes this last year, over a quarter of the total 2015 deficit. We must reverse some of the Bush era tax cuts which only served as giveaways to the rich, as they directly increased the deficit by decreasing revenues with no change to expenditures.

Finally, we must recognize that it is time to reform Social Security, a program which is responsible for 24 percent of our nation’s expenditures. With an aging population, we no longer have three workers to every Social Security recipient like we used to, and rather than come up with real sustainable reforms, we’ve taken money from other sources, adding to our growing debt. This reform must be done in two ways. We have to remove the payroll cap on Social Security taxes. As income disparities have increased, the amount of income protected by these limits has also increased, decreasing the amount paid into Social Security. We also must recognize that people are living longer than they did when Social Security was formed, and raise the starting age for Social Security accordingly. By enacting both of these changes, we can make the Social Security program self-sustaining and no longer an additional burden on federal deficits.

What are your thoughts on how the government should be run? Join us for an interactive simulation at Tisch Commons at 6 p.m. to have your voice heard.