Posts tagged with: United States public debt

636_debt_ceiling_0What is the debt limit or debt ceiling?

In most years the federal government brings in less revenue than it spends. To cover this difference, the Treasury Department has to issue government bonds which increases the national debt. The debt limit is legislative restriction on the total amount of national debt the Treasury is authorized to borrow to meet its existing legal obligations.

What is the current debt limit?

The current statutory limit on total debt issued by the Treasury is just under $16.7 trillion.

Shouldn’t we want Congress to refuses to raise the debt ceiling since it will lower our national debt?

The debt ceiling does not lower the national debt. The legal obligation to pay the debt has already been incurred by the government so the money is already owed. Refusing to raise the debt ceiling merely prevents the Treasury Department from borrowing money to pay the government’s bills.

When will the government run out of money to pay its bills?

The current estimate is October 17, 2013.

What happens when the government doesn’t have money to pay its bills?
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At some point everyone has heard an idea being discussed in Washington, D.C. and thought or said, “That’s insane.” Americans generally recognize there is, more often than not, something not quite right about inside-the-Beltway thinking. But to those who have never lived or worked in the D.C. area, let me tell you: You don’t know the half of it.

Think of your craziest uncle, the one who when you visit for Thanksgiving has some pet theory about how to fix the economy. Now imagine that intelligent, highly educated people heard your crazy uncle’s idea and took it seriously. Now also try to imagine that the idea was taken seriously enough that it was being discussed in the business section of a major newspaper’s website. That is the culture that is D.C.

For example, today the Washington Post’s Wonkblog has a story about the “platinum coin option”, a method for President Obama to get around the debt ceiling:
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In this week’s Acton Commentary, “Do Less with Less: What the History of Federal Debt and Tax Leverage Teaches,” I reflect on how the federal government has lived beyond its means for decades. This reality is especially important to recognize as we approach Tax Day this year as well as in the context of debates about how to address the public debt crisis.

There are many who think we need to raise taxes in order to close the historic levels of deficit spending. In theory I would consider raising taxes as a viable option, or at least preferable to continued deficit spending, since it would at least make the real cost of government more visible. Roughly 40% of what the government spent last year was beyond what it took in.

But without structural connections between increased taxes and balancing the budget, there’s nothing at all to give us hope that the government wouldn’t simply continue to leverage the greater revenue into greater deficit spending. In this vein I note the conclusions recently updated by Richard Vedder and Stephen Moore, that “over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.”

Calvin College philosophy professor James K. A. Smith doesn’t take this reality into account, I don’t think, when he recently argued that the current situation calls for raising taxes, both on the rich and the middle-class. Thus, he writes,

But only a lazy, unimaginative take on this would assume that “low taxes” is a given. So sure, one strategy to reduce debt would be to slash spending, which inevitably happens on the backs of the poor and vulnerable, particularly women and children.

The alternative to such an unattractive option as Smith sees it is to raise taxes, particularly on the rich. Smith thus points to the idea that America needs to adopt a “graduated tax like most other North American countries.”

The fact is, though, that the US already has a progressive tax system, and indeed places a much higher relative burden on the top decile of household incomes than other developed nations.

One of the next big fights will be over raising the debt ceiling, as Smith points out. Perhaps we can link balanced budgets with increases on the debt ceiling (something more feasible than passing a balanced budget amendment). The idea would be that we only increase the debt ceiling on the condition balancing the annual budget, and that we only think about raising taxes to balance that budget if we actually commit to balancing it.

Simply raising taxes won’t do anything but give the federal government more money to leverage into higher levels of deficit spending.

Last night Gideon Strauss of the Center for Public Justice was generous enough to join us for a public discussion of the recently-released document, “A Call for Intergenerational Justice: A Christian Proposal for the American Debt Crisis.” This document has occasioned a good deal of reflection here at the PowerBlog, and Gideon took the time to engage this reflection, introducing the context of the Call and answering questions about it. Gideon got to chide me for not signing the document and I got to elaborate a bit on why I have chosen not to affix my imprimatur.

We recorded the event and hope to have the discussion, including some lively Q&A from the audience, up on the site early next week. Meanwhile, this week’s edition of Capital Commentary features a series of short reflections on the Call, from both signers and non-signers. My summary statement is included:

NO: While I praise the Call for its effort to bring the moral aspects of the public debt crisis facing America to broader attention, I have not signed on for reasons of both principle and prudence. With regard to principle, I find no coherent framework contained in or entailed by the Call for judging what the federal government’s primary responsibilities are, whether with respect to national defense, criminal justice, infrastructure, foreign relations, entitlements, or other social programs. The Call moves too easily and quickly from God’s clear concern for the poor to endorse particular federal governmental responsibilities. This gives the clear impression that direct federal assistance to the poor is somehow divinely mandated, an impression that does not do justice to the responsibilities of other social institutions, particularly the church. On the prudential level the Call does not make the case strongly enough that various entitlement programs are the core of the budget dilemma, and signers of the document are construing it in ways that are mutually exclusive. We are in a situation where difficult choices need to be made about governmental spending, and the Call does not provide a principled or prudentially helpful framework for making these tough decisions.

—Jordan J. Ballor is a Research Fellow at the Acton Institute for the Study of Religion & Liberty

Blog author: jcouretas
posted by on Thursday, March 10, 2011

A new commentary from Acton Research Director Samuel Gregg. Sign up here to get the latest opinion pieces delivered to your email inbox on Wednesday with the free weekly Acton News & Commentary.

Deficit Denial, American-Style

By Samuel Gregg

Until recently it was thought the primary message of the 2010 Congressional election was that Americans were fed up with successive governments’ willingness to run up deficit-after-deficit and their associated refusal to seriously restrain public spending.

If, however, the results of a much-discussed Wall St Journal-NBC News poll released on March 2 indicate what Americans really think about fiscal issues, then much of the country is clearly in denial – i.e., refusing to acknowledge truth – about what America needs to do if it doesn’t want to go the way of many Western European nations.

While the poll reveals considerable concern about government debt, it also underscores how unwilling many Americans are to reduce those welfare programs that, in the long-term, are central to the deficit-problem.

Here are the raw facts. America’s federal social security program has become the largest government pension scheme in the world in terms of sheer dollars. It is also by far the federal budget’s single greatest expenditure item.

According to the Office of Management and Budget, “human services” ― Social Security; Medicare; Health-expenditures; Education, Training, Employment, and Social Services; Veterans benefits; and the euphemistically-named “Income Security” (i.e., unemployment-benefits) ― were consuming 4 percent of America’s GDP in 1949. By 1976, this figure had increased to 11.7 percent. In 2009, it was consuming 15.3 percent of GDP.

During the same period, human services began consuming a steadily-increasing size of federal government expenditures. In 1967, human services spending was 32.6 percent of the federal budget. By 2009, this figure had increased to 61.3 percent. It is predicted to rise to 67 percent by 2016. In 2010, 75 percent of human services spending was on Social Security, Medicare, and Income Security ― in short, the core welfare state.

These disturbing numbers make it clear any serious federal deficit reduction must involve spending-cuts to federal welfare programs. That doesn’t mean other areas of government-spending should be immune from cuts. But the deficit simply can’t be properly addressed without a serious willingness to reduce welfare-expenditures.

And yet despite all the passionate rhetoric from Americans about the need to diminish government-spending, the Wall St Journal-NBC News poll suggests that fewer than 25 percent of Americans favor cutbacks to Social Security or Medicare as deficit-reduction measures. As the Wall St Journal’s own commentators noted: “Even tea party supporters, by a nearly 2-to-1 margin, declared significant cuts to Social Security ‘unacceptable.’

Unacceptable? Think about that word. Do large numbers of Americans really believe there is something morally evil about significant reductions to welfare-spending under any circumstances? Since when – apart from Greece and other models of fiscal rectitude – have welfare payments assumed the status of an absolute right subject to no qualification? Have we really gone so far down the path of economic-Europeanization?

Granted, the same poll suggests much larger numbers of Americans are willing to raise the retirement age to 69 and means-test social security. But is that the best Americans are willing to do?

Spain’s unreconstructed-1960s-lefty Socialist government has just lifted Spain’s retirement-age to 67. Unsurprisingly, that won’t fully kick-in until 2027, long after Spain’s political class and their tame voting constituencies have met their Maker and no longer need to live off their children’s futures. But can Americans who proclaim their attachment to free enterprise and personal responsibility really do no better than left-wing Western Europeans?

Back in 2007, the journalist Robert J. Samuelson summarized the situation perfectly. “Most Americans,” he wrote, “don’t want to admit that they are current or prospective welfare recipients. They prefer to think that they automatically deserve whatever they’ve been promised simply because the promises were made. Americans do not want to pose the basic questions, and their political leaders mirror that reluctance. This makes the welfare state immovable and the budget situation intractable.”

Presidential campaigns are invariably accompanied by a great deal of posturing. It would be helpful, however, if some serious candidates for the nation’s highest office in 2012 – Republican or Democrat – would use their moment in the spotlight to educate Americans about what’s at stake.

One former American vice-president once reportedly insisted, “Deficits don’t matter.” Unfortunately, there is mounting proof he was wrong. After examining data on 44 countries over approximately 200 years, two economists recently found evidence suggesting that developed nations with gross public debt levels exceeding 90 percent of GDP (i.e., America) find that their medium-growth rates fall by one percent, while average growth declines by an even greater proportion.

That’s worrying because while deficit-cutting matters, wealth-creation matters even more if we are to dig ourselves out of our fiscal hole. America now seriously risks seeing its burgeoning welfare costs suffocating the productive sector of the economy that makes social welfare possible in the first place.

Incidentally, it won’t be the rich who suffer. It will be the poor. In their laudable concern for the weakest among us, Americans ought to remember that and start matching political rhetoric with consistent fiscal action.

Dr. Samuel Gregg is Research Director at the Acton Institute. He has authored several books including On Ordered Liberty, his prize-winning The Commercial Society, and Wilhelm Röpke’s Political Economy.

Last week’s issuance of “A Call for Intergenerational Justice: A Christian Proposal on the American Debt Crisis” has occasioned a good bit of discussion on the topic, both here at the PowerBlog and around various other blogs and social media sites.

It has been interesting to see the reaction that my comments about the Call have generated. Many have said that I simply misunderstood or misread the document. I have taken the time to reread the document and do some reassessment of the entire debate. Unfortunately this has raised more questions than answers for me thus far.

Gideon Strauss, CEO of the Center for Public Justice, has kindly offered to help us sort out some of these concerns. He’s in Grand Rapids later this week and has generously agreed to a public discussion in an open mic, informal setting we’re calling, “Opposing Views: America’s Debt Crisis and ‘A Call for Intergenerational Justice.’”

Details are below and at the Facebook event page. We plan to record the event and make it available for those who aren’t able to join us. But if you are, come along and bring your questions.
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I posted some initial thoughts on “A Call for Intergenerational Justice: A Christian Proposal on the American Debt Crisis,” which was released by the Center for Public Justice and Evangelicals for Social Action yesterday.

I’ve been engaged in what I think are largely helpful conversations on this document in a number of venues in the meantime. Gideon Strauss challenged me to look at the document again, and reconsider my criticisms, and I have been happy to do so.

For instance, I voiced the concern that the core budgetary problem that must be addressed concerns entitlement spending, and I judged that the Call does not sufficiently address that concern. Gideon pointed me to a piece by Michael Gerson, a signer of the Call, that makes precisely this point: “Debates on discretionary spending are important. Our government should not waste money on ineffective programs. But discretionary spending is a sideshow, even a distraction, from the main governing task: getting entitlement spending under control so it does not crowd out all other government spending.”

I also made a related point that we should not be juxtaposing cuts in, for instance, defense spending with those on other discretionary areas, including social programs. As Gerson writes, these debates are largely a “sideshow.” And so Gideon also pointed me to today’s editorial about the Call, which makes a number of important points, not least of which is that “It would be simplistic to portray the present challenge as a simple matter of ‘guns vs. butter’ and to overemphasize the contribution that prudent reductions in defense spending, however necessary, would make to the current debt crisis.”

One further point of concern I voiced is that “what we’re missing here is a really principled and vigorous view of what the government’s legitimate role is in the world and in relationship to a variety of concerns: defense, social welfare, international development, and so on.” Gideon pointed me appropriately to the CPJ “Guideline on Government.”

These are all good and necessary documents for understanding the proper interpretive context for the Call, and I’ll admit, they weren’t the first things I thought of when attempting to understand the petition. I still wonder, though, why some of these things couldn’t be made more explicit in the document itself? If Gerson is right, that debates over discretionary cuts of whatever programs are really a distraction, why not make the focal point of the Call entitlement reform in a more central and explicit way?

And I do think there are other relevant interpretive contexts for understanding the Call. Jim Wallis, Shane Claiborne, and a host of others have been involved over the last days and weeks in a “What Would Jesus Cut?” campaign that bears many similarities to “A Call for Intergenerational Justice.” Much of the material surrounding that campaign does seem to focus on fights over discretionary cuts, even to the point of contrasting military and social spending.

Jim Wallis said, for instance, “On a television program yesterday evening, I said that I want those who now propose major cuts to critical low-income family support programs to say, out loud, that every item of Pentagon spending is more important to our well-being and security than school lunches, child health, and early education programs.” He goes on to highlight particular social spending programs that should be immune to potential cuts.

I don’t think that kind of rhetoric is helpful at all, and is more of what Gerson might call a “sideshow.” But it is important because there is so much continuity between the “What Would Jesus Cut?” campaign and the “Call for Intergenerational Justice.” A significant number of signers of the Call, including Wallis and Claiborne, also are behind WWJC. And even the language about cutting budgets “on the backs of the poor” is reiterated with respect to the Call. Signer Jonathan Merritt writes that the Call means “we cannot balance the budget on the backs of the poor.”

So while the CPJ documents Strauss points to are certainly relevant to understanding the Call, I submit that the “What Would Jesus Cut?” campaign is also relevant. And here we might have a hint at why some of the more substantive theoretical questions regarding the role of the state in the provision of various social goods is not examined in more detail in the Call itself: the signers don’t have a unified view on this principled point. The CPJ Guideline on Government is a good starting point, but I find it highly doubtful that it would be assented to by all of the signers of the Call.

So perhaps there really is more than one way to read this document, and it can be put to various uses by various constituencies. This ambiguity, combined with my own doubts about what it actually does substantively say, are enough for me to refrain from signing it, even while I most certainly do agree with the sentiment that the current debt burden is unsustainable, both fiscally as well as morally, and continue to respect the work of many of those who have signed it.

Jordan Ballor has already done a fine job of commenting on A Call for Intergenerational Justice, and I’m sure that others will be chiming in on the PowerBlog as well. I’d like to focus on a couple of points that stand out to me from an initial reading of the document.

I suppose it says something about a document when you can’t finish reading the title without alarm bells going off. “Intergenerational Justice” is a fine sounding term, but what does it mean in the context of the statement? While it isn’t spelled out in any detail, my best guess based on the text and the known political positions of many of the signers is that “intergenerational justice” refers to a continuation of the various Federal entitlement programs that make up the lion’s share of the mandatory portion of the Federal budget. To wit:

“Effective programs that prevent hunger and suffering and empower poorer members of society must continue and be adequately funded.” 

The only program specifically mentioned in the document is Social Security. The authors of the statement believe that the program can be modestly changed, but no indication is given that any radical reform will be tolerated:

“We must make Social Security sustainable. We can slowly increase the retirement age, modestly reduce benefits for more wealthy seniors, and increase the amount of income taxed to pay for Social Security.” 

I think it’s fair to infer from the limited detail provided by the writers of this statement that there is little enthusiasm for major reform of the core Federal entitlement programs that ultimately lie at the root of our debt problem, and no consideration of the idea that these programs may have been ill-concieved, or that the Federal government might not be an appropriate vehicle for meeting such basic human needs. The programs are there, and for the demands of “intergenerational justice” to be satisfied, they must remain in place.

Absent from the discussion, however, is any mention of the intergenerational injustice that these social programs represent in the first place. For instance: I’m in my mid-thirties. I cannot remember any time since I became politically aware that I believed Social Security would be solvent and able to provide benefits to me when I reach old age. Politicians and commentators have been talking about the coming collapse of Social Security since I’ve been reading political commentary. Various temporary fixes to the program have been enacted, but none of them fix the structural problems that plague the program and lead to the ongoing crisis – they just shove the inevitable bankruptcy back by a decade or two (and the same is true of Medicare and other similar entitlements).

And this is nothing new. Today, I just happened to pick up John Samples’ The Struggle to Limit Government and read the following passage describing the arguments over Social Security in its early years:

The intergenerational character of Social Security attracted criticism from the start. M. Albert Linton, an insurance executive and advisor to the program, argued that Social Security would create a large and intolerable burden on future generations. He noted that Social Security’s experts planned eventually to devote as much as 20 percent of taxable payroll to benefits, a sum that the generation of 1939 had not devoted to the program. Why should the current generation be allowed to commit future generations to a burden it would not now impose on itself? Linton’s admonition had no effect on Social Security officials. During a presentation about the future of the program, the council’s chair, J. Douglas Brown, remarked, “Après moi le déluge.” Future generations could take care of themselves; the experts of 1939, not to mention the politicians running in 1940, had little interest in what happened to people who did not exist. 

So, Wallis et al., what say you? If the programs you so desire to save were designed in a way that took no account of their sustainability or of the wellbeing of future generations, and if those same problems persist today and even threaten to completely overwhelm the Federal fisc, why the insistence on saving them? Is there no other way to provide for human needs than through a bureaucracy? It strikes me as odd to demand the maintenance of fiscally crippling entitlements in the name of intergenerational justice when just treatment for future generations was of no concern to the designers of the entitlements in the first place.

One additional point from the “Call” jumped out at me from the “Core Proposals” section. Specifically:

“We must reform the tax code. We should remove many special exemptions, end many special subsidies, and keep the tax code progressive.” 

There is a lot to agree with in that statement – the Federal tax code is monstrous, and it is very likely that there is no one person with the capability to understand it in all of its intricacy. It is filled with all manner of loopholes, exemptions, and subsidies, and needs to be brought under control if we have any hope of understanding exactly how Washington obtains and distributes its revenue. But why the insistence that the tax code remain “progressive”? Why must that be part of any “Christian” proposal to address our nation’s debt crisis? Is progressive taxation truly just? When I read that statement, I recalled reading a contrary opinion from one of my favorite theologians and commentators, R.C. Sproul, on just this issue:

Alexis de Tocqueville, when he came and examined the great American experiment of democracy, said two things can destroy this experiment: One is when people learn that their vote is worth money, that you can bribe people to get their vote or that you can use the vote to somehow shelter yourself from financial or other obligations imposed upon others. Have we taken the blindfold away from lady justice? Are we not all equal under the law? 

On the contrary, we have an income tax structure today that is inherently unjust. We almost never hear anybody discuss this injustice. But when God set up a system of taxation, He did things differently. God said I’m going to impose a tax on my people and it’s going to be ten percent from everybody: The rich man and the poor man are not going to pay the same amount. The rich man’s going to pay much more than the poor man, but they’re both going to pay the same percentage. They’re both going to have the same responsibility. That way the rich man can’t use his power to exploit the poor man, saying, “I’m going to pay five percent, but you’re going to pay fifty percent.” The rich weren’t allowed to do that. Nor were the poor allowed to say, “We’re going to pay five percent and the rich are going to pay fifty percent because they can afford it.” What that is ladies and gentlemen is the politics of envy that legalizes theft. Anytime you vote a tax on somebody else that is not a tax on yourself, you’re stealing from your brother. And though the whole world does it and though it’s common practice in the United States of America, a Christian shouldn’t be caught dead voting to fill his own pocketbook at the expense of someone else. Isn’t that plain? Isn’t that clear? And until we get some kind of flat tax, we’re going to have a politicized economy, we’re going to have class warfare, and we’re going to have the whole nation’s rule being determined by the rush for economic advantage at the polls. Don’t do it. Even if that means sacrificing some benefit you might receive from the federal government. Don’t ask other people at the point of a gun to give you from their pockets what you don’t have. That’s sin.

I don’t write any of this to call into question the Christian commitment of any of the signers of “A Call for Intergenerational Justice.” In fact, I have little doubt that the signers of the document do indeed have a deep concern for the poorer members of society that they hope to defend in their actions. I’m more interested in pointing out that this document is exactly what its subtitle claims it to be: “A Christian Proposal for the American Debt Crisis.” Emphasis on A. It is not the Christian proposal; it is simply one of many responses that well-intentioned Christians can have to our current crisis. And it is entirely possible that well-intentioned people can have blind spots or propose economically flawed solutions to pressing problems. That seems to be a big part of what’s going on here.

A number of prominent evangelical leaders in America have issued a statement on the budget fights in the federal government. “A Call for Intergenerational Justice: A Christian Proposal on the American Debt Crisis,” is sponsored by the Center for Public Justice and Evangelicals for Social Action. Signatories include Ron Sider of ESA, Gideon Strauss of CPJ, Richard Mouw, Michael Gerson, Shane Claiborne, Andy Crouch, and Jim Wallis.

Here are some initial thoughts:

There is very little principle in this statement, which purports not to “endorse any detailed agenda.” The basic principle communicated is: “We ought to care for the poor because God does.” This is of course laudable and true, as is the commitment to “intergenerational justice,” as long as that is defined as not living today on the backs of the unborn and not code for something else.

But the rest really just consists of leaps in logic largely based on unstated assumptions about the role that government should have in administering that care. To wit: “To reduce our federal debt at the expense of our poorest fellow citizens would be a violation of the biblical teaching that God has a special concern for the poor.”

Given the current state of affairs, which the statement acknowledges is a “crisis,” I don’t think it is helpful to energize the grassroots to petition to save particular programs from scrutiny and reform. Things are so bad that everything should be on the table. The situation is not an either/or between social spending and military spending, as Claiborne and Wallis would have it. It’s a both/and, and that includes entitlements.

Which brings me to my next point: There isn’t nearly enough in here about entitlement reform. Social Security must become “sustainable,” but there is no mention of entitlement programs like Medicare and Medicaid. These are the real drivers of huge swaths of our national debt. Non-discretionary spending needs to be scrutinized.

But that’s not all. This call wants to place “effective programs that empower poor Americans or contribute internationally to economic development or the advancement of health” out of bounds. The fact is that many of these programs are busted, and I think it is disingenuous for those who know that to say that we have some kind of moral obligation to keep throwing good money after bad simply out of some vague concern for “the poor.” That is more like a salve for guilty consciences than responsible social action.

The language of the statement doesn’t seem to do justice to the principled positions that agree with the vague notion of the obligation to care for the poor, but disagree about the particular policy and budgetary implications at the federal level. Wallis and Chuck Colson recently agreed that Christians ought engage in principled and honest debate, and not demonize other positions, even implicitly. To cast the debate in the terms that budget hawks don’t care about the poor I think violates this kind of commitment.

So what we’re missing here is a really principled and vigorous view of what the government’s legitimate role is in the world and in relationship to a variety of concerns: defense, social welfare, international development, and so on. Once we’ve decided what government is for you can start to make some principled decisions about funding priorities…things closest to the core mission of government should get the highest priority, and so on.

And the focus really shouldn’t just be on what government should and shouldn’t do. Many of these leaders are religious leaders. The focus should be on what these other institutions can and should be doing, beyond simply serving as lobbying organizations for governmental programs.

I guess, needless to say, I won’t be signing.