Hypocrisy on debt ceiling

In January Republican House leaders called on their members to authorize spending $700 billion above anticipated revenues in this fiscal year.  On Wednesday, February 13, Speaker Boehner will call for a vote to raise the debt ceiling to pay for that spending and says he  will count on the support of most Democrats to pass it.

Like many Americans,  I believe that the federal government borrows far too much.  My book, to be released on April 1, explains in detail why.   But members of Congress are guilty of crass hypocrisy when they vote spend money greater than available tax revenues and then to vote against use debt to pay the obligations.   That is like a person who orders food at a restaurant, knowing that he or she does not have the cash to pay, and then protests when asked for a credit card.

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Troubling new estimate of federal borrowing

Yesterday the Congressional Budget Office released its annual estimate of federal borrowing.  By assuming that  Congress will allow budget cuts in the near future than it has been unwilling to make today, this forecast understates the use of debt to pay for routine federal expenses.     For example, the CBO assumes that fees paid to physicians for Medicare will drop by 24% later this year and that–beginning  October 1, 2015–federal spending on defense and domestic programs will adhere to budget ceilings that Congress suspended up until then.  And, of course, these projections envision no future emergency use of debt for traditional purposes such as war and recession.

Even with those assumptions, however, the CBO projects that current policies will never result in a balanced federal budget.    As a result, future federal services will become more expensive, since more of each tax dollar must be used to pay for debts incurred for past services.   Consider the budget for fiscal year 2020.   This fiscal year interest the CBO estimates an interest expenses of $425 billion, 31 cents out of each dollar of  personal income tax revenue of $1.381 trillion.   By 2020 the CBO estimates that the federal government will pay $905 billion in interest,   44 cents out of each dollar of personal income tax revenue totaling  $2.051 trillion.

The American Dream has been based on a willingness to work for greater opportunities for future generations.   That ideal is undermined when federal leaders use debt to disguise the cost of defense, medical services and other federal programs.

Budget Myth No. 2

Myth: “Modern deficit spending started with the New Deal and Keynesian economics.”

The federal government has frequently borrowed to fill budget holes during severe downturns.  It did so after several recessions and all three major depressions, beginning in 1837, 1893, and 1929.   President Franklin Roosevelt cut “normal” federal spending—including federal civilian and military salaries—at the outset of his presidency.  Like  President Hoover, and unlike current federal leaders,  Roosevelt tried to balance the budget for “normal” spending and accounted separately for relief and public works programs that would end when national income recovered.  Roosevelt vetoed a record 665 bills in order to enforce spending discipline.

President Roosevelt thought of Keynes as an impractical theorist.   Keynes himself envisioned that debt incurred during severe downturns would be reduced after economic recovery.    After World War  II most economists–including conservatives such as Milton Friedman–recognized that the federal government would inevitably borrow during a downturn as tax revenues fell.   Paul Douglas,  a respected economist who was also a liberal US senator, considered balanced budgets during periods of normal growth to be both good economics and good moral stewardship of the nation’s future.   President Harry Truman, a staunch defender of the New Deal, embraced the budget principle of  “pay as you go.”

Budget Myth No. 1

Federal Budget Myth No. 1

Few people actually read and remember federal budgets, which makes it tempting to rely on partisan explanations of why the federal government has not balanced its budget. Since 2001, however, the US has borrowed to pay for routine operating expenses, regardless of shifts in partisan control of the White House and Congress.

While everyone is entitled to their own opinion,  not everyone is entitled to his or her own math or historical facts.  A number of common  myths impede practical budget solutions,  since poorly defined problems are difficult to solve.  In the next two weeks I will identify a few common myths about federal debt and budgets.  Lets begin with the first.

Myth: “The federal government has rarely  balanced its budget.” In fact, the federal government borrowed for only four extraordinary purposes during the nation’s first 180 or so years.  Federal leaders borrowed  to wage wars, plug budget holes during downturns, acquire and link new territory, and prevent states from leaving the Union.  Congress typically paid down debt after each well-understood,  emergency use of debt.   So, for example, Congress retired debt with surpluses after the 4 or the 5 previous spikes in debt, after the the Revolution, War of 1812, Civil War, and World War II.

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Appendix A – US Treasury Debt, 1790-2012