December 21, 2009

A recent ABC poll showed 59 percent of Americans are very concerned about the amount of debt the U.S. has accrued over the last three years. CNN has a similar finding on how the average American views congress's ability to lower the debt - a stunning 33 percent! Add to that the Rasmussen poll which ask 1336 Americans if they believed America would ever "get out of debt" the result was a measly 16 percent!

The real kicker is this: Rasmussen asked the same people if they believed it was one of Congresses primary responsibilities to lower the debt and the result was 74 percent saying "Yes" and 7 percent "No"!

Well, dear Congressman/Senator, let's get busy! 

To the average citizen there appears to be one person in America who isn't feeling a credit squeeze: Uncle Sam. The House voted 218 to 214 to raise the national debt limit by $290 billion to $12.39 trillion. Now awaiting Senate action, the bill (HR 4314) would extend Treasury borrowing authority until about Feb. 11, at which time Congress would vote again to raise the debt ceiling.

But that is not the real spectacle which awaits taxpayers. Congress is expected to raise the national debt ceiling by nearly $2 trillion, to a total of $14 trillion. In this economy, everyone de-leverages except government.

It's a sign of how deep the fiscal pathologies run in this Congress that $2 trillion will buy the federal government only one year before it has to seek another debt hike—conveniently timed to come after the midterm elections. Since Democrats began running Congress again in 2007, the federal debt limit has climbed by 39%. The new hike will lift the borrowing cap by another 15%.

There is surely bipartisan blame for this government debt boom. George W. Bush approved gigantic spending increases for Medicare and bailouts. He also sponsored the first ineffective "stimulus" in February 2008—consisting of $168 billion in tax rebates and spending that depleted federal revenues in return for no economic lift.

Democrats ridiculed Mr. Bush as "the most fiscally irresponsible President in history," but then they saw him and raised. They took an $800 billion deficit and made it $1.4 trillion in 2009 and perhaps that high again in 2010. In 10 months they have approved more than $1 trillion in spending that has saved union public jobs but has done little to assist private job creation. Still to come is the multitrillion-dollar health bill and another $100 billion to $200 billion "jobs" bill.

We've never obsessed over the budget deficit, because the true cost of government is the amount it spends, not the amount it borrows. Milton Friedman used to say that the nation would be far better off with a budget half the current size but with larger deficits. Mr. Obama and his allies in Congress have done the opposite: They have increased the budget by 50% and financed the spending with IOUs.

Our concern is that the Administration and Congress view this debt as a way to force a permanently higher tax base for decades to come. The liberal grand strategy is to use their accidentally large majorities this year to pass new entitlements that start small but will explode in future years. U.S. creditors will then demand higher taxes—taking income taxes back to their pre-Reagan rates and adding a value-added tax too. This would expand federal spending as a share of GDP to as much as 30% from the pre-crisis 20%.

Remember the 1980s and 1990s when liberals said they worried about the debt? We now know they were faking it. When Ronald Reagan chopped income and business tax rates by roughly 25% and then authorized a military build-up, Democrats and their favorite economists predicted doom for a decade. The late Paul Samuelson, the revered dean of the neo-Keynesians, expressed the prevailing view in those days when he called the Reagan deficits "an all-consuming evil."

But wait: Those "evil" Reagan deficits averaged less than $200 billion a year, or about one-quarter as large in real terms as today's deficit. The national debt held by the public reached its peak in the Reagan years at 40.9%, and hit 49.2% in 1995. This year debt will hit 61% of GDP, heading to 68% soon even by the White House's optimistic estimates.

Our view is that there is good and bad public borrowing. In the 1980s federal deficits financed a military buildup that ended the Cold War (leading to an annual peace dividend in the 1990s of 3% of GDP), as well as tax cuts that ended the stagflation of the 1970s and began 25 years of prosperity. Those were high return investments.

Today's debt has financed . . . what exactly? The TARP money did undergird the financial system for a time and is now being repaid. But most of the rest has been spent on a political wish list of public programs ranging from unemployment insurance to wind turbines to tax credits for golf carts. Borrowing for such low return purposes makes America poorer in the long run.

By the way, today's spending and debt totals don't account for the higher debt-servicing costs that are sure to come. The President's own budget office forecasts that annual interest payments by 2019 will be $774 billion, which will be more than the federal government will spend that year on national defense, education, transportation—in fact, all nondefense discretionary programs.

Democrats want to pass the debt limit increase as a stowaway on the defense funding bill, hoping that few will notice while pledging to reduce spending at some future date. Republicans ought to force a long and careful debate that educates the public. Ultimately, the U.S. government has to pay its bills and the debt limit bill will have to pass. But debt limit votes are one of the few times historically when taxpayer advocates have leverage on Capitol Hill. Republicans and Democrats who care should use it to discuss genuine ways to put Washington on a renewed and tighter spending regime.

Remember when one Senator Barack Obama said: "Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren"?  This statement, made during the 2006 debt-ceiling debate. Is almost well forgotten by his buddies he left in the Senate while he strolled down Pennsylvania Avenue into the White House.  I also remember him saying "America has a debt problem and a failure of leadership. Americans deserve better." That was $2 trillion ago, when someone else was President.

To President Obama I say: "Here, Here!" But alas, he and his friends on the left in Congress have short-term memory loss. Good thing we have the Congressional Record to fall back on as a reference.

We believe that the Constitution of the United States speaks for itself. There is no need to rewrite, change or reinterpret it to suit the fancies of special interest groups or protected classes.