The National Debt Limit Equals a Balanced Budget

Published March 14, 2017

Once again the United States government is rapidly approaching a fiscal debt ceiling: After March 16, 2017, Uncle Sam will not be legally allowed to borrow any more money to cover its budget deficits, unless Congress votes to raise the debt limit, once again, like it has every time in the past.

Uncle’s Sam’s debt has been growing at a frightening rate over the last several decades. It took almost two hundred years, from around 1790, when the government of the United States was established, to 1980 for the federal government to accumulate $1 trillion of debt through deficit spending.

In the twenty-year period, 1980 to 2000, that national debt grew to $5 trillion. Then during the eight years of the George W. Bush’s Republican Administration from 2001 to 2009 the debt doubled to around $10 trillion. And over the eight years of Barack Obama’s Democratic Administration the national debt doubled, one more, to just short of $20 trillion.

The Taxpayer Cost of the National Debt

United States Gross Domestic Product – the market value of all final goods and services produced during a year –is estimated to have been about $18.6 trillion in 2016. That means if the American people were to devote last year’s entire national income to paying off the federal government’s accumulated debt, it would still fall short by nearly $1.5 trillion dollars!

With an estimated population of around 325 million people at the end of 2016, the per capita financial burden of the national debt comes to around $61,550 per person in the United States. About half of the U.S. population submits and pays some amount of tax to the federal government. This means that the per capita burden of the national debt for those submitting and paying Federal taxes is almost $123,500 per taxpayer.

Of course, in reality, many pay no or little net taxes to the federal government, while others pay far more. But this number at least gives a sense of what it would cost each of us, on average, if we were to try to pay off the national debt in one lump payment.

The Debt Limit and Short-Term Fiscal Tricks

The Congressional Budget Office (CBO) recently issued a report on “Federal Debt and the Statutory Limit, March 2017.” The report reminds us that Congress passed the “Bipartisan Budget Act of 2015” that temporarily lifted any limit on how much the federal government could borrow and add to the national debt until March 15, 2017, which is, now, just around the corner.

After that date, whatever has been added to the national debt up to that time becomes the new legal debt ceiling, which will be at or very close to that $20 trillion mark. Anything beyond this amount will require Congressional approval with a new, higher ceiling on government borrowing.

The CBO also points out that, as with earlier administrations that have reached that lawful limit without immediate Congressional approval of a higher number, the Secretary of the Treasury has a variety of short-run smoke-and-mirror tricks to keep spending by playing games with several internal government financial accounts. In other words, the Treasury Department can “juggle the books,” adding to the net debt through ledger book subterfuge and then make good on what has been manipulated out of the higher debt ceiling passed by Congress.

The Congressional Budget Office suggests that the available leeway to get away with this could allow the federal government to keep spending beyond taxes collected for several months before a real hard limit would be reached, after which there would no more room for such financial games unless the Congress increases the debt limit.

Uncle Sam’s Future Red Ink Has No End

The fact is government and its spending is out of control. In it’s January 2017 long-run “Budget and Economic Outlook” report covering the next ten years, the CBO estimates that continuing, and indeed, rising annual budget deficits between 2017 and 2027 will likely bring the federal government’s overall debt to at least a total of $30 trillion, or a 50 percent increase in the national debt in ten years or less. Those $1 trillion-a-year deficits experienced in the early years of Obama’s presidency, the CBO projects, will be back starting in 2023 and thereafter.

This, of course, presumes that the estimates for government revenues and expenditures made by the CBO for the next decade turn out to be correct. But if anything has a relatively high degree of certainty, it is that government ends up spending more than originally projected and planned. So the deficits and debt estimates can easily turn out to be on the low side by the time we reach 2027.

Uncle Sam’s budgetary excesses are being fed, more than by anything else, by the “entitlement” programs, especially Social Security and Medicare spending. According to the Office of Management and Budget, in the current federal budget for fiscal year 2017 (that runs from October 1, 2016 to September 30, 2017), Social Security and related programs will consume 36 percent of federal expenditures; Medicare and other health programs will eat up an additional 28 percent; and net interest on the federal debt will absorb 7 percent.

These two general redistributive categories make up over two-thirds of all federal government spending. And when net interest on the national debt is added, this comes to over 70 percent of all federal expenditures. The Social Security Administration spending in the current fiscal year will be around $908 billion, while expenditures by the Department of Health and Human Resources will come in at over $1 trillion.

Classical Liberals and libertarians may well consider that the United States government spends too much on defense and its military interventions in various parts of the world, spending that many friends of freedom may view as unnecessary and misplaced, but the Defense Department’s planned $516 billion spending in the current fiscal year, nonetheless, makes up only approximately 15 percent of overall federal budget. A lot of wasted money, no doubt, but right now it is not defense spending, per se, that is driving this growth in the size and scope of government.

Yet, the new Trump Administration, like virtually all other administrations before it, has insisted that Social Security and Medicare and related expenditures remain sacrosanct – untouchable by any budget cutter’s pen.  Plus, the Republican majority leadership in Congress, already unwilling to repeal ObamaCare without putting in its place the GOP’s “”moderate-conservative” variation on the national health insurance theme, clearly has no intention of challenging two of the core programs of the American welfare state. (See my article, “For Healthcare the Best Government Plan is No Plan.”)

If the President and the Treasury keep asking for increases in the national debt limit, and if Congress, in turn, after handwringing and gnashing of teeth about fiscal irresponsibility, continues to raise that debt limit there will clearly be no end to deficit spending.

A Frozen Debt Limit Means a Balanced Budget

But there is a simple and straightforward way to bring the fiscal hemorrhaging to an end. Don’t raise the debt limit. In one legislative act, in this case, a non-action, the federal government will have to operate within the confines of a balanced budget.

With no increase in the debt limit, the Federal government will be legally restrained to spend only what it takes in, in taxes and other revenue sources. This, in itself, makes the case for not increasing the debt limit very appealing.

Of course, this would mean that the government could not cover a part of those expenditures that it has contracted or legislatively committed itself to in previous years. This is what normally generates most of the outcry about needing to raise the debt limit.

The Congressional Budget Office estimates that in the federal government’s fiscal year, 2017, Uncle Sam will spend a total of nearly $3.96 trillion and collect in taxes about $3.4 trillion, leaving a budget deficit in the neighborhood of $560 billion.

To stay within the current statutory budget limit during this fiscal year, all that the federal government would need to do is to cut spending across the board by about 14 percent. Given the mismanagement and waste that virtually everyone admits goes in every bureau, agency, and department run by the federal government, a 14 percent “trimming” does not threaten (some might say, unfortunately) any of that “cutting to the bone” that the budget busters among both Democrats and Republicans constantly warn about.

Either You Spend Your Money or Government Does

But we should also realize that if the government is prevented from anymore borrowing, it would become crystal clear that the government does not possess an unlimited financial horn-of-plenty from which to satisfy every conceivable ideological and special interest demand for which an appeal is made to Washington.

If any of these demands for government spending above what can be covered by current government revenues were to be satisfied, it would then compel politicians and bureaucrats to tell the American public that which they avoid admitting like the plague: there is an inescapable trade-off between the people spending their own money and government taxing it away and spending it instead of them.

In other words, no longer could there be the illusion of a “free lunch,” in which the federal government makes it seem that something can be had for nothing, or at less than its real full cost. Every additional dollar of higher government spending above what is currently collected in taxes would require one less dollar left in the hands of private citizens who had produced and earned it, because that extra dollar of government spending would require an extra dollar of taxes taken out of the taxpayer’s pocket. (See my article, “Why Government Deficits and Debt Do Matter.”)

This would require the citizens and the taxpayers of the United States to ask themselves exactly what it is they want the government to spend money on, and for which they will have to make the hard choice to have less money in their own pockets to pay for it.

In other words, the American people would be reminded that there is a thing called “scarcity,” that the resources and financial means to obtain all that we would like to have is limited and insufficient relative to our wants and demands for things.

Balancing the Budget Means Accepting Trade-Offs

We each make such trade-offs and hard choices in our own personal, daily lives. Out of our take-home pay we decide whether we are willing to sacrifice going on that desirable but more expensive vacation so to put more money in our savings account to have the means to repair the roof on our home or to have more money put aside to pay for our child’s education when they are ready to go off to college.

Or if we put that new flat-screen television on our credit card, we know it may mean planning to go out to dinner less frequently for a while, since our monthly payment will be higher while we are paying it off, including more interest on that borrowed money.

A balanced budget for the government means having to prioritize what it can afford to spend, and on what – just like you and me.

Would the burden of cuts have to fall on “discretionary” government spending – including defense – if “entitlements” remain off the table? Yes, but that in itself would impose hard thinking on the American people as to whether or not they were willing to face the fact that it is the entitlement programs like Social Security, Medicare, and whatever may replace ObamaCare that are sucking up the greatest amount of what the government takes in as taxes now and will be even more so in the future.

Deciding on the Role of Government in Society

The American citizenry would be forced to look themselves in the face, and ask whether they are willing to pay the higher taxes to cover these rising entitlement costs, or whether they are finally going to accept the fact that real entitlement reform must be undertaken – including ending government responsibility and involvement in people’s retirement and health care costs altogether through full privatization and real free market alternatives. (See my article, “There is No Social Security Santa Claus,” on the coming fall of Social Security under current legislation, and a market-based policy for its full repeal.)

These are tough choices, given the increasingly embedded psychology of government paternalist dependency, and the politics of trying to live at other people’s tax expense for things we want government to do for us.

But either we face this reality and reevaluate what is and should be the role of government in society, or we go on “busting the budget” with continuing deficit spending and growing national debt, and face potential financial ruin for ourselves and our children and grandchildren further on in the 21st century.

The inescapable and inevitable choice is ours.

[Originally Published at The Future of Freedom Foundation