For the current fiscal year the federal government has racked up more expenditures than revenues it will take in. For this, politicians, mainly Republican, are acting as if the nation’s end is nigh due to “out of control debt.” Their anxiety is misplaced; federal spending exceeding income is the usual case. The last time the federal government’s revenues exceeded expenditures was during the Clinton administration.
There is indeed reason for anxiety, not because the government spends more than it takes in, or that the government cannot service its debt — it can. The reason for concern is that under the current self-imposed debt limit, the government would not be able to pay bills already incurred, unless congress takes action to raise the debt limit. This debt limit, a self-imposed exercise in idiocy, periodically places the government in the awkward situation of being unable to pay bills already incurred. This has happened on numerous occasions — more under Republican administrations than under Democratic administrations. If the government were not able to pay bills already incurred, it would seriously rattle the world wide economy and wreck the reputation of the U.S. government as the world’s most credit-worthy borrower.
In the past, Democrats have, without controversy, raised the debt limit when it occurred under Republican administrations, most recently under Trump. But when reaching the debt limit under a Democratic administration, Republicans make a fuss about it, like now, insisting that government expenditures be reduced.
How much the government spends, and on what, is indeed a legitimate topic deserving serious debate. Spending, and how it is paid for, reflects our national priorities. But Republicans complain about increases in the public debt only when Democrats are in charge. The public debt ballooned under Presidents Reagan, W. Bush, and Trump. Much of the current public debt occurred under Trump due to massive tax cuts, the bulk of which went to corporations and the nation’s wealthiest families. Recall that Trump reminded his wealthy donors to “appreciate the gift I gave you.”
House Speaker McCarthy and Republicans are insisting that, in return for voting to increase the debt limit that President Biden negotiates with them on spending cuts. Biden’s response is that once debts are incurred, the world’s richest nation doesn’t negotiate whether to pay them. If Republicans think the federal government spends too much, the time to limit spending is during the normal budgeting and appropriations process. Furthermore, if Republicans want to cut spending, they should specify what they would cut.
Biden has released his proposed budget for FY 2024. As is customary during any administration, the proposed White House budget is dead on arrival. Biden’s response is for House Speaker McCarthy and his Republicans to put their budget on the table, specifying which expenditures they propose to cut.
This brings us to the perennial debate on government spending in general. No doubt every American believes that “the government spends too much,” and that there is “too much wasteful spending.” Translation: “The government wastes money on useless items for which I see no benefit, but the benefits that my firm, organization, or interest group that I support, and the benefits I personally receive, are necessary and well-deserved.”
In other words, everyone can point to expenditures they believe should not, or should never have been made, whether wars that should have been fought, or benefits to individuals that are believed to be undeserved. But others see these same expenditures as necessary, and lobby intensely for them.
General agreement ends with “the government spends too much,” and “the government wastes money, and expenditures should be better audited.” From there, it gets contentious.
Major government expenditures are for entitlements, namely Social Security and Medicare. These expenditures are from separate pots of money and are non-discretionary, not negotiated annually. Changes in these popular and successful programs would require special legislation.
In contrast, the remaining approximately thirty percent of federal budget expenditures are discretionary expenditures, negotiated during the budgeting and appropriations process. About half of these discretionary expenditures are for Defense, leaving the remainder for everything else.
So where do we go from here?
Speaker McCarthy and Republicans — at least some of them — have promised not to cut entitlements, non-discretionary expenditures. That leaves discretionary expenditures, the largest portion of which includes Defense, leaving the small remainder for everything else, including Medicaid. Republicans generally don’t want to cut defense. Do they really want to cut Medicaid, on which many of their low-income constituents in red states depend?
If the objective is to “balance the federal budget,” there is another way than by cutting spending, which is hard to do. An alternative is to raise taxes. It’s not that there is no money out there. The number of billionaires in the U.S. has risen dramatically. It is widely acknowledged that billionaires pay a much lower tax rate than “teachers and firefighters.” Taxpayers that pay a larger share of their income in taxes than billionaires and profitable corporations includes carpenters, plumbers, electricians, health care workers, construction workers, retail workers, and about everyone else.
The wealth of America’s billionaires has increased by some $1.3 trillion during the first eleven months of the pandemic. Between 1990 and 2020, the number of America’s billionaires has increased from 66 to 614. In 2020 there is estimated to be about 724 billionaires in the country. Modestly raising their taxes would not diminish the lifestyle of these people.
Biden’s proposed budget would raise taxes on profitable corporations and the nation’s wealthiest citizens. We can see why Biden’s budget is dead on arrival. It has long been central to Republican dogma not to raise taxes on the wealthy, but to reduce them instead.
House Speaker McCarthy is in the interesting dilemma of being central to maintaining the credit worthiness of the U.S. Government, or tanking it, while having promised House members responsible for his Speakership that he would fight the debt limit.
Meanwhile, reluctance to raise the debt limit needlessly puts yet another stress factor on the economy. Holding the credit worthiness of the nation hostage to the debt limit needlessly adds to economic uncertainty which is bad for financial markets and everyone else.
— John Waelti’s column appears monthly in the Times. He can be reached at jjwaeti1@tds.net.
