December 29, 2020
$27.5 trillion and counting…
Perhaps you’ve been distracted by the recent COVID-19 news and election headlines. But our national debt is still there… quietly growing larger day by day.
Here today to dive into this exploding crisis is Brian Darling, former senior communications director and counsel for Senator Rand Paul.
The Exploding Debt Crisis…
We Can No Longer Ignore This Massive National Threat
By Brian Darling
Another national crisis is coming… more serious than a nuclear-armed Iran or even the existing coronavirus pandemic.
Government spending and our exploding national debt have become a national security threat… This is the No. 1 threat to the existence of America as we know it.
Crushing debt will lead to a domino effect in which the government and economy collapse all at once when this country’s credit-card bill comes due.
It is important to also note the immorality of racking up debt. Think about it this way… If the parents of five kids go on a spending spree by purchasing a mansion, the best cars, and a second house at the beach when they only earn enough to barely scrape by, then what happens when that bill comes due and the kids have to pay?
We are seeing that today… The current generation of politicians don’t blink an eye at racking up $3 trillion in debt in one year that the next generation of politicians will have to figure out how to pay off. If you truly believe that government debt matters (and it does), America is overleveraged and way into debt with no way out.
Politicians used to discuss solutions for reducing or eliminating government debt. It was a conservative-virtue talking point for them. But they can’t pretend anymore… There is no conceivable way that government can continue to send taxpayers into debt at record rates without consequences to the stability of government and severe impact on the economy. The U.S. is entering dangerous territory, and it needs to take a hard look at ways to cut spending going forward.
Red and Blue Both Bleed Money
Neither Republicans nor Democrats are hiding the sad fact that they don’t care about government spending. Democrats have always been the party that promotes big spending ideas, like the Green New Deal, and Republicans have traditionally been the party promoting budgets that cut spending.
The facade that Republicans as a party care about overspending is gone… This past year, with Republicans leading the charge, Congress spent record amounts with no effort to offset new spending. So the Republican Party has no standing to make believe they all of a sudden care about debt because of the prospect of President Joe Biden spending on things they don’t like.
Simple economics tells you that government is a terrible allocator of resources. Former congressional representative and libertarian leader Ron Paul wrote in American Consequences in the October 2020 issue, “Government spending forcibly takes resources from the private sector, where they are used to produce goods and services desired by consumers, and puts them in the hands of politicians and bureaucrats.” Economics 101 teaches us that government spends inefficiently. The elites in Washington of both parties think they know better than the American people on how to spend privately earned cash.
Recommended Reading: A Massive Wave of Bankruptcies is Coming
A major shock is coming to the U.S. financial system. The election results won’t matter (but a long court battle or a wave of riots could make things MUCH worse). Months of stock gains could go up in smoke. But there’s an easy way to make sure your money and prospective gains are LEGALLY-PROTECTED. The last time something similar happened you could have seen 772% gains. A real reader explains how he does it, in plain English, right here.
The Pandemic Poured Salt on the Nation’s Debt Wound
Our national debt is petrifying… The Congressional Budget Office (“CBO”), the arm of Congress that produces independent analyses of budgetary and economic issues to support the congressional budget process, put out the “Monthly Budget Review: Summary for Fiscal Year 2020,” containing data for the fiscal year that ended on October 31.
The CBO reported “in fiscal year 2020, which ended on September 30, the federal budget deficit totaled $3.1 trillion.” They found that the “federal debt held by the public rose to 100.1% of GDP” – up more than 20% from merely a year ago. When you interpret this sentence into easy-to-understand English, it reads government owes one whole year of private sector economic activity to pay off the federal government’s accumulated debt. This is not merely outrageous, it’s dangerous…
Much of 2020’s deficit is attributable to the coronavirus pandemic. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), the Paycheck Protection Program (“PPP”), as well as other aid to private sector businesses hurt by the coronavirus pandemic, is estimated to cost about $1.7 trillion.
Reports indicate that government efforts to help the private sector in the wake of state shutdowns for the economy may not have worked. Shane Shifflett of the Wall Street Journal wrote on November 17, “About 300 companies that received as much as half a billion dollars in pandemic-related government loans have filed for bankruptcy, according to a Wall Street Journal analysis of government data and court filings.”
So in addition to the lost economic activity, as a result of the pandemic and government shutdowns, the federal government wasted borrowed cash on an ill-conceived plan to save small businesses.
There are also legendary stories of fraud in the PPP program. According to the New York Post, as of September, there have been 2,495 suspicious activity reports thanks to companies self-certifying that they qualified for loans. Fox Business reported that one Virginia man “lied to obtain $2.5 million in loans” that he ended up using to purchase a Cessna aircraft and a luxury car. Another report indicated that a Florida man used his loan to purchase a Lamborghini.
Reports indicate that government efforts to help the private sector in the wake of state shutdowns for the economy may not have worked.
Although the program seems to have provided a stimulus for the sales of private jets and expensive foreign sports cars, the PPP program didn’t work as intended and was a magnet for fraud.
A Radical Scenario Calls for a Radical Solution
There has to be a solution that does not rely on the goodness of the hearts of Republican and Democratic federal politicians to tackle the debt. Ron Paul advocates ending “all unnecessary overseas commitments,” eliminating “corporate welfare,” and shuttering “unconstitutional federal agencies.” He recommends that the people need to reject the “entitlement mentality” and embrace liberty as a replacement for the nanny state.
I have a more radical solution – a constitutional balanced budget amendment and no increase to the statutory debt ceiling.
I agree with Ron Paul, yet I worry that the entrenched interests in Washington, D.C. have made it impossible to cut spending through the good grace of politicians and the limited power of voters to send responsible people to Washington. The big-picture problem is when it comes time to pass giant spending bills, both parties tend to hold hands and pass them. It helps the leadership of both parties to raise contributions from lobbyists and special interests to preserve the status quo and protect the incumbent class of politicians who are the real enemy of small government.
The incumbent class raises millions from lobbyists and special interests to keep their jobs. The parties bicker over the issues of taxes, judges, and spending priorities, yet they have engaged in bipartisan lawmaking to pass the biggest spending items that have blown up the federal budget.
Just look at the No Child Left Behind Act pushed by Republican President George W. Bush with the help of the late Democratic icon Sen. Ted Kennedy… Creation of the massive Department of Homeland Security was bipartisan. The CARES Act was tagged with a $1.8 trillion cost and passed unanimously in the Senate while Rep. Thomas Massie (R-KY) was almost run out of Congress for demanding a roll-call vote in the House. Massie failed to get that roll call. And the leadership of House Republicans and Democrats protected members of both parties from future criticism for a coronavirus relief package that failed to jump-start the economy. The list goes on and on…
The biggest drivers of spending are entitlement programs. According to the CBO, in 2019 revenues were $3.5 trillion, with $2.7 trillion dedicated to mandatory spending and $1.3 trillion to discretionary spending. The mandatory numbers broke down to $1.3 trillion for major health care programs, including Medicare ($775 billion) and Medicaid ($409 billion). But these numbers take into account receipts that are collected to fund these programs, so the numbers are lower than the true number.
There has to be a solution that does not rely on the goodness of the hearts of Republican and Democratic federal politicians to tackle the debt.
Social Security cost about $1 trillion, and when you add up all mandatory spending now, it chews up most of the money coming from taxpayers. Brian Riedl of the Manhattan Institute projects “Social Security and Medicare face a combined $100 trillion cash deficit over the next 30 years, which is projected to bring a $100 trillion national debt.” This is the unsustainable element of the budget that Congress has zero willingness to address.
One solution is to pass a constitutional amendment to mandate a balanced budget. When I worked at The Heritage Foundation, I wrote a paper titled “The House and Senate Balanced Budget Amendments: Not All Balanced Budget Amendments Are Created Equal.” The key to an effective budget restraint law is to put in the constitution with two key elements: First, politicians and federal judges can’t use mandatory tax hikes to balance the budget, and there can’t be waivers (like one that allows for a waiver during “military conflict that causes an imminent and serious military threat to national security”). A true declaration of war would be needed to pass an unbalanced budget during a time of war and a supermajority two-thirds vote of Congress to pass.
The sad fact is that efforts to restrain spending by passing budget laws that contain both automatic cuts and triggered cuts have proven an abject failure.
The three laws that proved failures were Gramm-Rudman-Hollings, PAYGO, and the Sequester. Gramm-Rudman-Hollings was part of the Balanced Budget and Emergency Deficit Control Act of 1985. This contained automatic spending cuts that were gutted by the federal courts, and Congress passed a new version in 1987 that also proved to be a failure. Michael New wrote for the Cato Institute on July 31, 2019, “While Gramm Rudman Hollings did result in some short-term spending cuts, its main outcome was creative accounting. Congress often pushed spending into future fiscal years to create phantom spending cuts to stay within the deficit targets. When the economy slowed down, the deficit targets became too difficult to reach, and the legislation was scrapped in 1990.” This statutory first cut at an automatic mechanism to control spending crashed and burned.
The next swipe at spending restraint was the Pay As You Go budget rule, or PAYGO. That law was based on a sequester that would automatically cut spending when Congress was unwilling to do so. Accounting gimmicks, like advanced appropriations, were used to get around this law.
The last attempt was during a 2011 fight over raising the debt ceiling. Conservatives pushed something called the Cut, Cap and Balance Act that cut spending, capped future spending as a percentage of GDP, and mandated a passage of a Bipartisan Budget Act (“BBA”) as a condition to hiking the debt ceiling. This was a key provision pushed by Tea Party members and sponsored in the House by Rep. Jason Chaffetz (R-UT) joined by 117 cosponsors. In the Senate, the idea was pushed by my former boss Sen. Rand Paul (R-KY) and Sens. Jim DeMint (R-SC), Ron Johnson (R-WI), and Mike Lee (R-UT).
That battle was lost, but it resulted in a deal cut that created a new “Sequester.” The deal that Speaker of the House John Boehner struck with the Tea Party resulted in the formation of a Joint Select Committee on Deficit Reduction, which could not come to a deal to cut spending. This resulted in automatic cuts divided between security and non-security-related social programs – the “sequestration.” And with yet another Sequester, Congress found a way around it.
The one law that can restrain spending is for members of Congress to hold the line and not hike the debt ceiling. The debt ceiling is a statutory limit on the amount of national debt that can be incurred by the federal government. According to the U.S. Department of the Treasury, “since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.”
Under the Constitution, Congress retains the power to authorize hikes in the borrowing authority of the government. If Congress refuses to hike the debt ceiling, it can limit spending and effectively implement a balanced budget through statute. A winning strategy would be for Congress to not hike the debt limit and move toward a BBA that would start the process of cutting spending.
All of this debt has become a national security threat and a debt passed on to future generations. In addition to the sheer immorality of passing debt on to our kids, we may be passing along a government that is about to implode caused by crushing debt. Congress needs to focus on this issue over the next few years or our nation is cooked. Debt is an existential threat to the future of America, and it is time for Washington to do something about it.
Brian Darling is former counsel and senior communications director for Sen. Rand Paul (R-KY). He also is a seven-year veteran of The Heritage Foundation where he was senior fellow for government studies.
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Managing Editor, American Consequences
December 29, 2020