House Speaker John Boener and his colleagues are threatening to block an increase in the federal government’s borrowing authority if they don’t get a bunch of unspecified budget cuts. This might sound reasonable to some people, but it’s not. No matter what else we do, we have to raise the debt limit or do serious damage to the United States economy, as both parties have always voted to do when the ceiling was approached in the past. (Edit: I mean, of course, that they’ve always voted to raise the limit, though I suppose it’s fair to say that they’ve from time to time voted to damage the economy as well.)
President Ronald Reagan pointed out the danger in a letter he wrote to Republican Senate Majority Leader Howard Baker in late 1983. As Reagan put it, “The full consequences of a default — or even the serious prospect of default — by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar. The Nation can ill afford to allow such a result. The risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before Congress adjourns.”
The United States has always had a national debt. The degree to which debt is a problem for a family or a country depends on the ability to make payments on it. Immediately after World War II, the U.S. national debt was larger than the entire annual gross domestic product. That’s a significantly higher debt load than today, but we’d just come out of the Great Depression and defeated Nazi Germany and Japan. By the time Jimmy Carter left office the total debt was only about a third of GDP. But now the ratio is more than twice as high as in 1980, having risen sharply under Reagan, the two Bushes, and Obama. (It went down under Bill Clinton, who produced the first budget surplus since Lyndon Johnson.)
The current massive deficit is not the result of expanded domestic spending, which has risen only modestly, mainly to pay for unemployment benefits and repair our infrastructure. The deficit is mainly a consequence of two wars, Medicare Part D, and a drastic fall in tax revenues resulting from the current bad economy and the Bush and Obama tax cuts, all of which were financed by borrowing. Sadly, the same self-styled conservatives who claim to be alarmed about the deficit are the ones who want to slash taxes for the rich to levels not seen since the 1920s. That’s one reason the budget plan the House passed, claiming it would lead to a balanced budget in something over a decade, would not actually balance the budget after all, according to the Congressional Budget Office. Worse, most of the projected spending reductions would come from slashing Medicare spending by replacing the program in the future with what amounts to insurance coupons that would leave future seniors spending thousands a year extra out of pocket just to get the same level of care they have today.
Meanwhile, an alternative budget proposal produced by a group of congressional Democrats, a budget that would eliminate the deficit in only about 10 years, would accomplish this by cutting wasteful spendin and raisinge taxes on the richest to a level slightly lower than under most of Ronald Reagan’s presidency, but the news media and pundits have largely ignored it.