Implications of Federal Budget Deficits and the National Debt on the Future

A few facts need to be presented at the onset of this paper:

  1. In 1980 the national debt was less than 1 trillion dollars.
  2. By the year 2000, twenty years later, the national debt was around 5.5 trillion dollars.
  3. The national debt doubled under the Bush administration from $5.5 trillion to $11 trillion dollars.
  4. During the Obama administration, the national debt has climbed an additional $8 trillion to more than $19 trillion dollars so far.
  5. The Obama administration has projected that the national debt in 2020 will be over $22 trillion dollars![1]
  6. Total or gross federal governmental debt is not just debt held by the public. It is the sum of debt held by the public (currently around $14 trillion dollars) plus intragovernmental debt such as debt owed to the Social Security Trust Fund and other governmental funds (currently around $5 trillion dollars.)[2]
  7. The Social Security Administration must begin the process of redeeming federal government notes beginning around the year 2019 in order to be able to continue issuing full payments to recipients. That means that the federal government must begin the process of paying back the funds borrowed from the Social Security Trust Fund sometime around the year 2019.[3]

 

History has taught us that Democratic Republics with massive debt, such as ours, typically enter into extended periods of decline that frequently end with fundamental changes in government.

Thomas Jefferson said, “I place the economy among the first and most important of Republican virtues, and the public debt as the greatest of the dangers to be feared.” Jefferson studied history and knew that accumulated debt was a primary reason for failures of Democratic societies in the past.

Instead of continually fighting for increases in social benefits that our country cannot afford, or voting for government officials who promise to cut taxes just so they can get elected, we need to do the patriotic thing as a nation and balance our budget. It is shameful that the only way that the United States government can currently pay its bills is by borrowing from foreign countries.

In order to have a balanced budget, national revenues must equal national outlays. Targeting both revenues and expenses at 20% of Gross Domestic Product (GDP) in future years would accomplish this objective.

It is important at this time to address the prevalent argument that taxes should be reduced in order to stimulate growth, rather than raised.

If taxes were to be reduced to one dollar for every taxpayer, growth would indeed be stimulated. The roughly 140 million workers in the United States would increase to about 150 million workers. Tax receipts at one dollar per worker would be 150 million dollars. 150 million dollars would not even cover the cost of the United States military for one hour.

The point is this. Taxes have already been lowered so much over the past 35 years that the massive federal deficits of today cannot be eliminated by growth created from further tax cuts.

In his farewell address, George Washington said the following: “As a very important source of strength and security, cherish public credit. …it is essential that you should practically bear in mind, that towards the payment of debts there must be Revenue; that to have Revenue there must be taxes; that no taxes can be devised, which are not more or less inconvenient and unpleasant…”. Clearly, our first president understood that government could not function without adequate taxation.

Likewise, intentional deficit spending by the federal government to stimulate the economy in the short term, at the expense of the long term, is a poor strategy that should be avoided. Intentional deficit spending during periods of slow growth would be acceptable if the additional debt incurred were to be paid down when normal growth resumed. However, the truth is that increases in national debt almost never get paid down. On the rare occasions that budget surpluses have occurred in the past, they were used to justify new spending increases or tax cuts.

Although our nation is now headed down a dangerous path of decline due to years of fiscal irresponsibility, it is not too late. We can leave an era of excessive greed and begin to balance our national budget instead of selling out the future.

We the people should demand reductions in federal spending and direct our elected officials to eliminate the remaining elements of the imprudent Bush tax cuts. By doing so, we might be able to avoid the future economic decline of our country to such a degree as to potentially jeopardize the blessings of liberty for ourselves and our posterity.

 


[1]   United States Office of Management and Budget, “Historical Tables – Budget of the U. S Government – Fiscal Year 2017”, Table 7.1. Web Site: www.whitehouse.gov/omb/budget

 

[2]   United States Treasury Department, “Intragovernmental Holdings and Debt Held by the Public”. Web Site: www.treasurydirect.gov/govt/charts/principal/interest/graphs

 

[3]   Official Social Security Website, “Status of the Social Security and Medicare Programs”, “A Summary of the 2015 Annual Reports”. Web Site: www.ssa.gov/oact/trsum/index.html