By Don Schmitz
The debt ceiling: repeatedly, Democrats and Republicans raise the ceiling, mortgaging our progeny’s future, and sticking them with the bill to pay for our insane spending. Someone has to pay the bill; shamefully, we seem happy to hand it to our kids. Reagan added $1.86 trillion (with a T), George H.W. Bush $1.55T, Clinton $1.4T, George W. Bush $5.8T, Obama $8.6T, Trump $6.7T. In the first two years of his presidency, Biden has added $2.4T in debt. As you can see this isn’t a Democrat or Republican problem, rather a huge American problem, a $31 trillion problem.
The debt-ceiling law was enacted in 1917, and Congress exercises its Constitutional power in Article 1 Section 8 to reduce deficit spending in exchange for raising the ceiling. Most of the deficit reductions since 1980 have been part of a debt-ceiling increase negotiation. Sometimes Congress will grant a small and temporary increase to allow time for additional negotiations. Spoiler alert: Something like that is going to happen here as well. Biden and McCarthy are putting pressure on each other with the nuclear option of default, but they won’t let that happen. Likely McCarthy isn’t bluffing as much though, as Congress passed a budget with limited increases going forward, reducing the deficit by $4.8 trillion over 10 years. That’s the deficit, not debt, which will still climb. Thankfully, there simply aren’t the votes in Congress to go back to profligate spending.
Don’t buy the alarmist rhetoric of the administration. In 2006, then Sen. Biden voted against raising the debt limit, stating: “Because this massive accumulation of debt was predicted, because it was foreseeable, because it was unnecessary, because it was the result of willful and reckless disregard for the warnings that were given and for the fundamentals of economic management, I am voting against the debt limit increase.” Now as president he calls Congressional demands “really dangerous.”
Our debt is now 129 percent of the GDP, higher than during World War II, the highest in our history. In 1980 it was 32 percent, 1990 54 percent, 2000 55 percent, 2010 90 percent. The trend is ominous. Ratios above 77 percent can hinder economic growth, put a country at risk of default, and we are in the top 12 of the world for debt as a percentage of GDP.
We will pay $400 billion in interest this year on this monster, which is more than outlays for veterans programs, food and nutrition (SNAP), Social Security disability, federal and civilian retirement, housing, elementary and secondary education, higher education, supplemental social security income, and transportation, COMBINED! That interest cost each household $3,055, and it would consume all corporate income tax revenue.
As interest rates rise, so will the interest on the debt. A 2 percent increase would increase our annual interest payment to $475 billion. The Biden budget will increase the debt from $32.7 trillion now to $50.7 trillion by 2033. As the politicians continue to add debt through deficit spending, the Congressional Budget Office estimates the debt will soar to 225 percent of the GDP by 2050, and paying the interest will rise from the sixth largest line item it is currently to the largest. No wonder a recent Pew survey found 57 percent of Americans think reducing the deficit is a top priority.
Joe Taxpayer isn’t doing much better. Total household debt in America peaked at $17 trillion this year for the first time ever. To keep up with the mountains of debt, pressure will grow to increase taxes. In 2011, U.S. tax revenue was 14.27 percent of GDP, but now it is at 19 percent. Our grandchildren will probably pay over 30 percent, much of which will be for the interest of what we are spending on ourselves today. That will depress economic growth, continue to spike inflation, while they struggle to pay their bills. That is just the predictable outcome, not the frightening one. The last time we had debt approaching the current sad state was during WWII. We borrowed heavily, all resources going to the war effort, as we defended our national sovereignty. It was necessary.
Now imagine a real war breaks out again, or a truly horrible pandemic. We would find ourselves in true need to generate money by borrowing, but unable to do so because we had already fully leveraged the country. We would be like the family who has taken out a second on their home, maxed out their credit cards, and has an emergency that they have no resources to draw on. They are bankrupt. Countries don’t go bankrupt, they default, resulting in worthless currency, collapsed economies, and social unrest. Politicians and bankers are hand-wringing that we could default now due to a political impasse, but if they don’t eliminate the deficits, the default will be a real for our progeny, and partisan rhetoric won’t fix it. Pay now, or pay later.