National Debt Crisis

Our National Debt Just Exceeded $23 Trillion

The power of the purse is one of the fundamental responsibilities delegated to Congress by the Constitution. And it’s clear for the last seventy (70) years, Congress has taken full advantage of this power regardless of the perilous trajectory it places on America.  Congress allowed this unchecked power because they have managed to use tricks and evasion tactics to hide the true cost of their legislation.

It is, however, no secret that the U.S. federal government has a sweet spot for overspending.  Every year politicians continue to spend billions of dollars more than the government takes in.  If we don’t control this debt, our tax rates will go up, and our standard of living will go down.   

Today our debt currently averages $70,100.00 for each American. 

From 1901 onwards, the federal budget was marked by red that indicates deficits. If you study our history closely you will see that since the 1940s, our elected leaders have shown little regard for the future, but instead have embraced pushing off their responsibility to future generations. Now our debt has caught us, and we must correct course. In the chart below, observe how the red (deficit) and black (surplus) were identical to each other till the 1940s, after which a steeper slope broke out and the two lines separated. Up until 1940, deficits and surpluses were well-balanced as stated below:

Deficit periods have 22 (55%) instances.

Surplus periods have 18 (45%) instances. 

However, post-1950, the distribution of deficit was 87% and the surplus was 13%, signifying a growing difference. The shift occurred mainly because of a structural development intrinsic to the budgeting behavior. 


 

Federal Spending and Revenue Patterns through U.S. History 

Back in the 19th Century, budget deficits were associated with war expenses or economic depression. The Civil War from 1861-1865, the Spanish-American War in 1898, and economic depressions of 1879 and 1890, all caused a $1 billion deficit in the 50-year period from 1850-1900. Afterward, a greater balance was achieved in the federal budget, until the First World War broke out. As a result, a $23 billion deficit was created in 1917-1919. Afterward, each budget came with a surplus for 11 consecutive years. The combination of the Great Depression and the Second World War began an extended run of deficits, causing a $216 billion deficit from 1931 to 1946. 

After the 1950s, deficits became a lot more common, especially during times of war. The years pertaining to the Korean War (1950-1953) and the Vietnam War (1964-1973) are known for huge deficits. Moreover, new changes began to appear on the budget’s revenue side of the balance sheet. The only surplus generated in the past 25 years was 1998 through 2001. Mid-East Wars and the Great Recession seemed to alter the responsibility of Congress to produce a closely balanced budget.

The federal budget stands as one of the most critical policy instruments of the U.S. Government. Elected leaders take key budget decisions to meet their constitutional responsibilities, showcase their priorities for certain policies, and supervise the federal purse. The federal budget demonstrates its actions to consume and invest, borrow and lend, and collect taxes and spend. Such actions represent what role the federal government plays in the national economy. This process allows policymakers to decide what the spending priorities are and identify how they can generate revenue to compensate for it. Due to the scope and size of the decisions taken for the federal budget, it is one of the most complex and integral exercises of public policy-making. 

Deficit Trends

One has to compare the deficit against the U.S.’s capability to pay it back. The GDP (gross domestic product) is used to measure this ability. This assessment is known as the debt-to-GDP ratio.

Deficits balloon up the national debt after every year. When the debt-to-GDP ratio exceeds 77%, it is only then the country hits a tipping point. At this critical juncture, lenders are worried whether it is a good strategy to purchase bonds for the country.  Currently, our debt-to-GDP ratio is at 105%, making our debt $200 billion more than our nominal GDP.

Since 1987, the deficit has been less than debt accumulation. Afterward, Congress initiated a practice to borrow from a surplus in the Social Security Trust Fund. It was the baby boomer generation that created this surplus. The number of working people was greater when baby boomers were in their 20s and 30s.  As a result, Social Security spending was less than the payroll tax contributions. The extra revenue was then invested in bonds. The purpose of this move by Congress was to limit the issuance of treasury notes. In the last decade, the following events were pivotal to the debt-to-GDP ratio.

 

The Federal Budget Process

The Federal Budget process used by the government today is the result of the Congressional Budget Act of 1974. The act is a result of the Nixon Administration’s refusal to spend funds allocated by Congress. The act created the Congressional Budget Office (CBO) and was designed to counterbalance the influence of the Office of Management and Budget (OMB) in the White House.

The following process sums up the overall budget process.

Step 1: Launch the Budget Request

The President sets the process in motion by submitting a budget request for the upcoming fiscal year— which starts on October 1. The President’s OMB (Office of Management and Budget) and federal agencies collaborate on an interactive process to create this request. There are three purposes for this request.

First, the President submits recommendations to Congress. These can circle around the following aspects:

  • How much of the budget should be spent on the public?

  • How much tax revenues are to be collected?

  • How much of a surplus or deficit can be run?

Second, priorities are laid out by the President on federal programs. This dictates his opinion on expenditures in health, education, agriculture, defense, and other areas. These directions are very specific in nature. They can also suggest funding levels for different budget accounts. 

Lastly, the President can convey their thoughts about recommendations on tax policy and spending changes. The President can offer insights on annually appropriated programs, but they don’t need to propose any legislation-based changes in the ongoing budget sections, which were funded by the previous laws. Moreover, the President can come up with recommendations for mandatory programs and propose modifications in the tax code. 

Step 2: Finalize Budget Resolution

In this phase, Congress organizes hearings to get feedback from Administration officials, ending with a budget plan known as a budget resolution. The Senate and House Budget Committees collaborate with the goal of drafting and enforcing this resolution. Once the budget resolutions are passed by the Budget Committees, the majority vote is used to amend them on the House and Senate floors. A conference from the House and Senate is used to address differences. After the conference agreement is approved by both the houses, the budget resolution is adopted for that year. Congress is required to pass the resolution by April 15th. Interestingly, it has become a norm for Congress to avoid passing a resolution in recent years. Instead, they go along with a multi-year plan. 

Step 3: Enact the Budget Resolution

Next, Congress reviews the annual appropriation bills. These bills are used to pay for discretionary programs in the upcoming fiscal year. Congress also assess the legislation for enacting modifications to revenue levels or mandatory spending within the resolution’s dollar constraints.

Issues with the Current Budget Process

At present, the budget process faces the following stumbling blocks.

Lack of Cooperation Between Congress and the President

Congress and the President don’t have any incentive to collaborate. Congress is often guilty of violating its internal agreements. Moreover, Congress and the President rarely concur on even the broadest blueprint of the budget, so negotiations on funding for countless programs that need annual appropriations is a daunting prospect.

Improper Monitoring

The budget process is unable to offer a clearinghouse for spending. The budget is expected to facilitate the President and Congress contemplating deeply and figuring out how the federal government should spend and tax in the following year. Still, barely one-third of the spending—allocated as discretionary—is subjected for yearly appropriation processes. Mandatory programs are not reviewed on a regular basis to expand ungovernable year after year. Hence, the budget process prohibits the national policymakers to adjust tax and spending priorities with all the programs. 

Biased Towards Higher Spending and Taxes

The entire process is biased towards higher spending and taxes Multi-year constraints like discretionary spending caps and PAYGO allow policymakers to have a long-term insight to curb the decisions of those annual budgeters who adopt a short-term approach. However, these constraints cannot address the dilemma of whether the process should be utilized to reduce the growth of the budget deficit or to dial down the spending. Such befuddlement causes unexpected circumstances, affecting policies that would fulfill both the objectives of reducing the budget deficit and decreasing spending. 

Complex Structure

The budget process is convoluted and vulnerable to abuse by those in government who get the hang of the process’ intricacies. Journalists, voters, and even policymakers fail to grasp the current budget process. This is why many budgetary decisions are led by individuals who have mastered these intricacies and exploit these rules for their own benefit. 

A Breakdown of Federal Budget

In March 2019, President Trump launched the budget request for FY 2020. This federal budget amounts to $4.7 trillion.  The U.S. government expects $3.6 trillion in revenue. As a result, a $1.1 trillion deficit is imminent from October 1, 2019, to September 30, 2020. 

Revenue

Revenues are generated by taxes. These include income taxes, Medicare, Social Security, payroll taxes, corporate taxes, excise taxes, tariffs, and estate taxes.

Spending

The government plans to spend $4.7 trillion. Around 60% of this amount is allocated for Medicaid, Medicare, Social Security, and other mandated benefits. The U.S. government also has to pay interest on a $479 billion national debt. The remaining money is used to pay for discretionary spending.

Mandatory Spending

Mandatory spending is going to be $2.8 trillion in 2020. Social Security ($1.1 trillion), Medicare ($679 billion), and Medicaid ($418 billion) make up the biggest expenses. 

Discretionary Spending

The discretionary funds are $1.4 trillion. Most of these funds are allocated to military spending and defense-related departments. The remaining funds are used to pay for domestic programs like Housing and Urban Development, Education, and Health and Human Services. 

Military Spending

The highest expense worth $576 billion will be allocated to the Department of Defense base. 

Deficit

The deficit is supposed to be $1.1 trillion – the difference between the $4.7 trillion in spending and $3.6 trillion in revenue. 

Spending Priorities

The Peter Peterson Foundation produced a white paper in 2019 titled The Solutions Initiative 2019 that outlines the budgetary and spending policies of seven “Think Tanks” to bring the federal budget and long term deficit into closer balance. The policies range from conservative organizations such as the American Enterprise Institute to the liberal group Economic Policy Group. Through tax and spending policies for health, social security, defense, non-defense, interest payments, and other governmental categories, the paper summarizes how best to reach a more balanced and sustainable budget. 

Is Deficit Bad?

This year, the federal budget took a 26% jump and went up to $984 billion – a hike is last seen seven years ago. As a result, the government had no other option than to borrow more.

Unlike the average person, Congress and President overspend intentionally. It is a strategy to spur economic growth. The greater the spending, the more it can stimulate economic status. 

Keep in mind that a budget deficit is not an immediate problem. When done strategically, it can put money in the pockets of families and businesses and support the industries. All of these factors build up a strong economy – the reason why other states readily offer loans to the U.S. government. As the U.S. has always performed admirably with repayment, it has gained a great deal of trust from its investors. 

 

Solutions

Most budget solutions you will read discuss massive cuts and while this is needed, we first must end the ways in which Congress hides how these debts and bloated budgets occur in the first place.  If we just cut, the next Congress simply goes back to their old tricks and builds back up the debt. As such, these solutions embrace fiscal responsibility, streamline the budget process, and ensure the overall budget is more transparent.  It also identifies waste, fraud, and duplicative services that must be ended to get control over our debt. As a final measure, these solutions end certain tricks congress uses to avoid letting us know just how much they are spending. It should be noted that there are massive issues with our National budget, and these are simply the first of many solutions that we must exercise to get control of Congress’s out-of-control spending.   

  • Congress must end the use of Changes in Mandatory Programs (ChIMPS)

CHIMPS is a way to score savings on mandatory programs but actually disguise no savings or even increases in spending. These are actually fake paper savings.  This technique is to push the costs of a program into future years. In effect, Congress creates a “Balloon” of the costs at a future date. Balloon payments are what helped create the financial crisis of 2008. In FY 2016, the Senate attempted to get control of ChIMP spending but has not phased them out.   

  • End Timing Shifts 

Congress uses timing shifts to mask the true cost of the legislation. By using a 10-year budget window, congress can artificially alter the time costs and revenues are incurred or received during a program’s life, and thus are able to show less impact upon the deficit and debt in order to gain the approval of the program.

Time-shifting may be used when known beneficiaries decrease outside of the 10-year budget window. Congress claims part of those savings early in order to slow the growth of expenditures. This technique shows false savings in a current budget cycle while hiding the true cost in future years. Basically, Congress uses a 10-year budget window to determine the impact of legislation.  In order to lessen the impact of a pending law, they simply expend the impact beyond the 10-year window to hide the true cost. Congress can also shift revenues by adding in revenues from beyond the 10-year window into the 10th year.  In short, they claim savings beyond the 10-year window and push expenditures past the 10-year window.  Confusing right? Things like this are the reason I’m running!     

  • End Pension Smoothing   

Pension Smoothing is just another form of a time shift.  Congress simply counts money into the Treasury now that will not come until the future.  This trick is used by Congress to delay making mandatory pension payments.

This trick must also end because it not only creates debt, it may result in some companies paying a higher tax bill.

  • Stop Double Counting Federal Trust Fund Savings

This trick uses a Congressional scorekeeping practice that makes broad assumptions on what benefits are derived from federal trust funds, like Social Security and Medicare Part A. These benefits will continue to be paid on schedule, regardless of the actual ability of the trust to supply these funds.  This is most concerning because both Medicare and Social Security trusts are projected to be insolvent within the next 20 years. Once they are solvent, the government can bail them out with a general fund transfer, but since the Congressional Budget Office (CBO) has already accounted for the expenditure, the bailout will not be recorded as a cost.

This trick is also one of the tools democrats used to justify passing the Affordable Care Act in 2010.  At the time, the CBO estimated that the legislation would reduce budget deficits by $143 billion between 2010 and 2019.   These savings were being used simultaneously to pay for a new entitlement program as well as to increase the lifespan of the Medicare program.

If not for the use of these made-up “savings,” the legislation would have been scored as increasing the deficit and would have run afoul of the Senate Byrd Rule.

  • Require all Savings to be Specific

Each fiscal year Congress lays out unspecified budget savings in an effort to appear to “balance the budget.”  Many of these unspecified savings are not realized or are impossible to track. In FY 2017, the House Budget Committee pushed a resolution with $530 billion in unspecified savings.  In FY 2018, the budget resolution contained approximately $730 billion in this category. Focusing on firm debt reduction strategies will allow us to better control our overspending.  

Enact S.63: Bipartisan Budget and Appropriations Reform Act of 2019

The bill, if enacted, modifies the federal budget process and create a requirement of biennial congressional budget resolutions, instead of the current annual budget resolutions. It does not change the current annual process for appropriation bills and budget reconciliation.

Adjustments in the budget process would include:

  • Move the budget resolution to a two-year cycle, while maintaining annual appropriations.

  • Require more involvement from Senate spending and taxing committees, including requiring detailed spending and revenue plans to better inform budget development.
     

  • Focus on fiscal sustainability by requiring the budget resolution to establish a debt-to-GDP target backed by a deficit-reducing special reconciliation process to promote adherence to the budget plan.
     

  • Create a mechanism within the regular budget process to end the brinkmanship surrounding the statutory debt limit by conforming the limit to levels called for in the budget resolution.  
     

  • Establish an optional new bipartisan budget pathway through which the budget would set a glideslope of deficit reduction that includes health care, revenue levels, and appropriations, and tax expenditures. Such bipartisan budgets would require the support of at least 60 Senators, including at least 15 members of the minority party, and would be considered in the Senate under expedited procedures jointly agreed to by the Majority and Minority Leaders.
     

  • Provide a more orderly, deliberative process for Senate consideration of budget resolutions that preserve the ability of Senators on both sides of the aisle to offer amendments. 
     

  • Enhance fiscal transparency by requiring that up-to-date tabulations of congressional budget action are publicly posted and that information on the interest effects of authorizing and revenue legislation be included in cost estimates prepared by the Congressional Budget Office.  The legislation also supports transparency efforts underway at CBO.
     

  • Require CBO and the Government Accountability Office to regularly review and report to Congress on portfolios of federal spending to help lawmakers make more informed budgetary decisions.

 

Resources

  1. U.S. Constitution, Article I, 9, clause 7

  2. http://stats.areppim.com/ressources/usxbudget_1789x2019_572x412.png

  3. Ibid.

  4. https://www.thebalance.com/us-deficit-by-year-3306306

  5. https://www.cbpp.org/research/policy-basics-introduction-to-the-federal-budget-process

  6. https://www.heritage.org/budget-and-spending/report/whats-wrong-the-federal-budget-process

  7. Ibid.

  8. https://www.thebalance.com/u-s-federal-budget-breakdown-3305789

  9.  https://www.pgpf.org/sites/default/files/PGPF-2019-Solutions-Initiative.pdf

  10. https://www.nytimes.com/2019/10/25/us/politics/us-federal-budget-deficit.html

  11.  “An Original Concurrent Resolution Setting Forth the Congressional Budget for the United States Government for Fiscal Year 2016 and Setting Forth the Appropriate Budgetary Levels for Fiscal Years 2017 Through 2025,” S.Con.Res. 11, 114th Congress (2015), https://www.congress.gov/bill/114th-congress/senate-concurrent-resolution/11 (accessed June 13, 2017).

  12. Cheryl D. Block, “Budget Gimmicks,” in Fiscal Challenges: An Interdisciplinary Approach to Budget Policy (Cambridge: Cambridge University Press, 2007), https://law.wustl.edu/faculty/workshops/budgetgimmicks.pdf (accessed July 18, 2017).

  13. Vipal Monga, “Welcome to the World of ‘Pension Smoothing’: New Bill Extends Provision That Allows Firms to Delay Making Pension Contributions,” The Wall Street Journal, August 11, 2014, https://www.wsj.com/articles/welcome-to-the-world-of-pension-smoothing-1407800119 (accessed June 28, 2017).

  14. Congressional Budget Office, letter to Speaker Nancy Pelosi, March 20, 2010, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/costestimate/amendreconprop.pdf (accessed June 22, 2017).

  15.  The Byrd Rule prohibits the consideration of extraneous matter (as defined by the Congressional Budget and Impoundment Control Act of 1974) as part of a reconciliation bill or resolution or conference report thereon in the Senate. The Byrd Rule is enforced by a point of order that can be raised by any Senator. If the point of order is sustained, the offending provision is stricken from the bill unless a three-fifths majority can be raised to waive the rule.

  16. https://www.govtrack.us/congress/bills/116/s63/summary

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