Recently House Speaker Kevin McCarthy (D, CA) proposed a solution that would increase the Public Debt to $33 trillion. This is a $1.5 trillion increase that would be allowed only if deep and long-lasting spending cuts are made. Those who believe that the federal government should spend large sums of money called this absurd. The rest of us should take an objective look.
The Federal Government has increased and intends to further increase government spending substantially. Prior to the pandemic, the federal government was spending less than $4.5 trillion annually.
President Biden has proposed a 2024 spending budget asking Congress for $6.9 trillion. That amount of spending is more than 50% higher than five years ago. It is simply not sustainable. Tax revenue cannot possibly increase that fast.
But Federal Government borrowing can.
In the last five fiscal years, (2019-2023) the federal government has added nearly $10 trillion to the public debt. This is unsustainable for obvious reasons.
As the existing public debt is rolled over at higher interest rates and as more new debt is added, the annual interest expense will reach $1 trillion before the end of this decade. That is a terrible burden to place on our children.
The other reason is that as the government annually pulls trillions from capital markets, less new capital is available for consumers and businesses. In a capital-intensive economy like ours, less capital formation slows growth and puts upward pressure on prices.
The US Public Debt is a very, very deep hole. We all know, the first thing to do when you are stuck in a very, very deep hole is: STOP DIGGING.
McCarthy has agreed to avoid all those nasty issues that occur when the debt ceiling is reached. In return, he wants assurances that the federal government will STOP DIGGING.
First, he wants to make sure that total government spending does not grow by more than 1% each year. Once again those that favor large government spending called this proposal ridiculous.
Looking objectively and assuming Fed Chair Jerome Powell can eventually reduce inflation to his 2% target. McCarthy’s plan should not lead to drastic cuts. There is a problem however concerning where the small cuts will come from.
More than 60% of government spending is for entitlement and health maintenance programs: Social Security, Medicare, etc. Politically that can’t be cut. And the interest on the Public Debt must be paid. Since most Americans are concerned about wars and how much the government has depleted our military, defense spending cuts can’t occur.
That leaves the Social Programs. This is where the progressives voice their greatest concerns. Here is what CNN says about cuts in government spending for social programs: “Examples the agencies gave included shutting down 125 air traffic control towers, slashing nutrition services for 1 million senior citizens and eliminating affordable housing assistance for close to 1.1 million families. Also, the reduction would impact the 6.6 million students who rely on Pell Grants and the 1.2 million women, infants and children who receive nutrition assistance through WIC, (Congresswoman) DeLauro said. Plus, 200,000 children would lose access to Head Start and 100,000 children would lose access to childcare.”
I suspect when prioritizing spending cuts, unless considerable waste can be found, those programs would not be high on the list. Some similar benefits may be cut for “able-bodied adults ages 18 to 55.” That means an individual who is able to work must work in order to collect some benefits.
Another major where McCarthy wants spending cuts is for clean energy tax credits. While the importance of these programs varies, most seem to think they are worthwhile. But if the choice was between lunches for school children or a tax credit for green energy, the kids come out on top.
And if any state hasn’t spent the COVID money given by the federal government, they must give it back.
The bottom line is we must control the public debt. Almost all Americans who pay Federal Income Tax, believe that they pay too much, especially considering that nearly half of American households pay no federal income tax at all. Raising taxes won’t work.
That means we have to reduce government spending. We should do that because it follows the principles that allowed our country to go from the birth of a nation to the largest most prosperous economy in the world in about 150 years.
That is, we encouraged individual freedom and individual responsibility, along with low rates of taxation and a limited role for government. We have strayed too far from those principles. McCarthy is trying to get us back.
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