What is the debt ceiling? The debt ceiling dates back to 1917. It caps the level of debt that the federal government can assume. Once the U.S. hits the limit and exhausts ways to pay its bills, Congress must lift the ceiling in order for the government to continue to borrow to meet its obligations. If it doesn’t, the country could be forced to default, which experts warn would be economically catastrophic.
What really is catastrophic is that the debt ceiling and our Federal spending are not connected. Congress passes spending bills without consideration of how their spending gobbles up funds that count toward the debt ceiling. When the ceiling is maxed out, many believe it should automatically be raised to meet the obligations already passed and signed into law. Others want to use the debt ceiling vote as a way to negotiate lower spending levels on a number of priorities. They use the debt ceiling vote as a way to negotiate what they could not negotiate in the budgetary process.
National Debt
At the time of this writing, our national debt stands at $31.384 trillion dollars. By comparison, on April 1, 1993, our national debt was $4.2T. In thirty years, the debt has risen by $27.2T. Here is where the debt stood at the end of each President’s term (I used January 19, the day before inauguration day for these snapshots; rounding was employed. Data taken from Debt to the Penny.):
- End of Clinton’s terms, $5.7T
- End of Bush’s terms, 10.6T; increase: $4.9T
- End of Obama’s terms, $19.9T; increase $9.3T
End of Trumps’ term, $27.7T; increase $7.8T
- Today: 31.4T; increase $3,7T (prorated) $7.4T
Congressional Budget Office projections estimate we’ll add twenty trillion to our national debt in the next ten years. They also project the annual deficit to rise from an estimated $1.6T in 2024 to $2.9T in 2033. Spending for major healthcare programs and social security will continue to rise and the trust funds will be depleted by 2033 (the highway trust fund will be depleted in 2028). If we don’t change course, net interest costs will continue to climb, exceeding all mandatory and discretionary spending by 2050.
In addition, with higher interest rates as a result of inflation and the structural mismatch between spending and revenues, the Peterson Foundation continues to claim that the United States in on an unsustainable path. I fully agree with this sentiment.
Why Raise the Debt Ceiling Limit?
The argument for passing the debt ceiling without delay is that raising the debt limit does not authorize new spending or tax cuts; it merely acknowledges past budgetary decisions and allows the federal government to meet its legal obligations. As the Government Accountability Office (GAO) states, “The debt ceiling does not control the amount of debt. Instead, it is an after-the-fact measure that restricts the Treasury’s ability to borrow to finance the decisions already enacted by Congress and the President.”
Reason to resist voting to raise the debt ceiling limit: you can get concessions that you cannot get during the legislative process. A few Republicans may be able to hold up the entire process. No matter what happens, the Republicans will get blamed and it won’t end well for them politically. But I’m not sure they care.
Core Problem
The core problem is this: as a nation, we don’t value living within our means and staying out of debt. Most of our economy is now built on debt. As a society, we can add the following debt amounts to the Federal debt to gain a wider perspective on how invasive and pervasive our debts are:
- State Gov’t debt is $1.21T
- Student debt is $1.75 T
- States unfunded pension benefits is $1.4T
- Americans owe $19T in mortgage debt
- Americans owe $930B on credit cards
- Americans owe $1.52T on auto loans
- Unfunded Social Security Obligations is $87T – has gone up $20T in the last 10 years
This is our problem. We’ve over-promised to ourselves and we’re not paying for the gov’t services that we’re consuming. The cost of our national debt is estimated to be $400B in 2022. If we continue spending rates as we have, we’ll borrow more and our debt service payments just on the interest will rise to $1.2T in 2032, consuming $8.1T over the next ten years.
What’s the Solution?
What I propose here is basic cash management 101 which every family uses. The solution is to increase taxes and cut (in real dollars) expenses. Raise enough additional revenue and reduce enough expenses to close the annual deficit gap. Then, purposefully use extra cash that the government gets from time to time to start buying down our debt. If we put $500B/year toward the debt, it would take us close to 70 years to pay it off.
Moreover, Americans need to fundamentally rethink debt and retirement. We need to rethink what we value when it comes to debt and how we look at retirement. We can’t assume the government will take care of us over life period of 20 or 25 years. We need to be willing to work well into our seventies and we need to be willing to live with delayed gratification if it means staying out of debt.
Bill English, Publisher
Bible and Business.
Comments are closed