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October 2016 Policy Study, Number 16-3

   

How To Restore Federal Fiscal Sanity: The State Legislatures Hold The Key

   

Is A Balanced Budget Important Enough To Justify A Constitutional Amendment?

   

 

Why should we be concerned?

 

The federal government’s spending and debt are out of control.  We no longer have a debt problem: we have a national debt addiction.  The official federal debt is more than five trillion dollars.

 

Actual total federal debt is much higher.  Research by NATIONAL TAXPAYERS UNION FOUNDATION discovered the federal government has $18 trillion of total liabilities, including the official debt, unfunded liabilities of retirement programs, federal loan guarantees, etc.

 

It took 204 years for the official federal debt to reach $1 trillion ($1,000 billion) in 1981.  It took only 14 years to quintuple that debt to $5 trillion in 1995.  We have had 28 consecutive years of deficit spending and rising debt.  For 28 years, every President and every Congress failed to control our debt habit. 

 

Who is actually hurt by federal deficit spending and debt?

 

All Americas are hurt in many ways, including:

 

Inflation.  To finance federal deficits and debt, the supply of money and credit must be expanded faster than a normal growth rate. This means the quantity of dollars grows faster than the supply of goods and services.  Thus, the dollar loses value, prices rise, and inflation eats away our people’s income and savings.

 

Another confirmation that we are trapped in debt addiction is the widespread acceptance of a 3 percent inflation rate as “normal”.  Less than 30 years ago, 3percent inflation was intolerable.  Inflation is the cruelest tax – especially for the elderly, poor, middle-income, and working people.

 

High real interest rates.  The federal government is borrowing too much of our nation’s total savings.  This keeps interest rates artificially high for everyone – consumers, home buyers, farmers, and businesses.  Real interest rates (adjusted for inflation) are higher than necessary because of the national debt and fears of rising inflation.

 

Interest Payments.  Interest on the federal debt is more than $300 billion each year, and it is rising as the huge federal debt rises.  Money spent for interest payments can’t be spent for necessary services or used for needed tax cuts.  All this money is gone, wasted, a $300 billion hole in America’s pocket.

 

Higher Taxes.  It’s easy to spend more and start new programs with borrowed money.  But eventually all this spending must be paid for, and the rising interest payments on the federal debt must be paid immediately.  All this keeps federal taxes too high – a drag on our economy, and a heavy burden on American families.

 

Too Few Good Jobs.  Federal government borrowing eats up savings and capital needed by new or expanding businesses.  This shortage of investment capital makes it harder for companies to modernize plants and to compete.  America loses more export markets.  Small businesses, which create most new jobs, are hit especially hard.  The results: federal borrowing prevents the creation of many new jobs our people need and steals the jobs of many Americans whose employers can’t get enough capital investment. 

 

Stress on Families.  Total government spending – federal, state, and local – is now 51 percent of U.S. total personal income.  Federal spending is far more than half of this total spending.  Is it any wonder that our families are in financial trouble when the government takes more than half of what it makes?  Federal debt adds more burdens: inflation, high interest rates, high taxes, and too few good jobs.  All this puts more stress on families, forces most families to have two wage-earners and to often moonlight, deprives parents of time with their children, and threatens the American dream for most families.

 

What about our children and grandchildren?

 

The federal government is mortgaging the future of our children and grandchildren.  My wife and I have five grandchildren.  They all cried when they were born.  Of course they cried, coming into the world owing a huge and growing personal share of the national debt!

 

Each American’s share of this debt is more than $20,000 and is rising rapidly.  In addition, a baby born today will pay, in a normal lifetime, nearly $200,000 of extra taxes just for the interest on the federal debt.

This is fiscal child abuse.  It is taxation without representation.

 

Thomas Jefferson wisely said, “The question whether one generation has the right to bind another by the deficit it imposes is a question of such consequence as to place it among the fundamental principles of government.  We should consider ourselves unauthorized to saddle posterity with our debts, and morally bound to pay them ourselves

 

How does federal deficit spending affect the states and their Legislatures?

 

Soaring federal debt causes or worsens many problems – inflation, unemployment, high real interest rates, an unstable economy, stressed families, etc. – that puts burdens on state governments and budgets.  As interest payments swallow a widening slice of the federal budget, the federal government dumps more services and unfunded mandates on the states, causing more state budget problems.

 

But don’t we owe this debt to ourselves?

 

A growing share of our national debt is held by foreign banks and investors.  The United States has declined from being the world’s biggest creditor nation to the world’s biggest debtor nation.  Our national economy is increasingly controlled by decisions in Tokyo or Zurich.  Proverbs 22:7 says, “The borrower is servant to the lender.”  Soaring federal deficits and debt have given foreign creditors the power to bring our nation to its knees.

 

Could federal debt cause the collapse of our nation?

 

Debt addiction is like heroin addiction.  The user feels great until the supply is cut off.  Can this continue forever?  History says “no.”  The question is:  will we stop our debt addition through voluntary constitutional restraint, or will our foreign creditors force us to stop?  Will we do it or will they do it to us?

 

As the official debt soars toward $6 trillion, our nation sinks deeper in debt to foreign creditors. At some point, the overseas holders of U.S. debt will doubt that we can repay it.  Then they will say “no more,” forcing us to stop borrowing and begin paying back that mountain of debt.  What will happen then?  The experience of many other nations suggests that at least two bad things will happen:

 

  1. The American people’s standard of living will become sharply lower.  Our nation will be like the family whose banker requires halting the debt binge and shifting a big share of family income into debt repayment.
  1. We are also likely to suffer the runaway inflation that has destroyed many nations.  Many governments, unable to pay their debts, inflated themselves out of existence.  Can we be certain our federal government won’t yield to this temptation? 

Halting an addiction is always painful.  The longer an addict waits to take the cure, the greater the pain and the more injury to the addict’s health.  The longer we wait to require a balanced budget, the more painful it will be.

 

History teaches that financial instability leads to political instability.  Bankrupt governments don’t last long.  Our government is not yet bankrupt, but it is courting a debt disaster through reckless spending and borrowing.

 

Can anyone name a county that became great or stayed great because of all the money it owed?  All the evidence points the other way.  Many nations that heaped up national debt have suffered spiraling inflation, bankruptcy, and a sharply lower standard of living – plus political chaos and a serious loss of human rights. 

 

The real danger is even more than economic collapse.  Runaway deficits threaten America’s long-term political order and the survival of the freedoms in our cherished Bill of Rights.

 

Our nation must act now to place a responsible restraint on runaway debt and reverse our nation’s downhill slide before it is too late.

 

   

 

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