The National Debt
April 19, 2011
A credit-rating agency warned yesterday that the United States may not be able to make good on its debt. The agency said the odds are one in three that the United States will lose its AAA rating in the next two years, which would make it harder for the United States to borrow money, at higher interest, triggering a catastrophic debt spiral. NRO’s Kevin Williamson gives some good background and explanation, while NRO editor Kathryn Jean Lopez points out that if you read National Review, you would have seen this coming.
Republican Congressman Paul Ryan has proposed a serious plan to reform federal spending over the long term and bring deficits and the debt under control. He and his colleagues worked hard on it, and from everything I’ve heard, it’s excellent.
Today I’d like to talk about the other side. What are the alternatives to the Ryan plan? The short answer is that the Democrats have so far been totally unserious about dealing with Washington’s spending problem and the national debt. In fact, they’ve been worse than totally unserious: Not only will they not solve the problem, but they keep smearing the people who are trying to solve it (for example, making it sound as if the Ryan plan would pull Medicare out from under elderly Americans, when in fact his reforms are gradual and would not affect current beneficiaries).
As you may have heard, President Obama gave a big speech last week, basically his answer to the Ryan plan. (Obama had already proposed his own budget just a couple of months ago, but that one was so unserious about the deficit that he had to give it another try, if only for show.) If you didn’t already listen to it or read it, I don’t recommend it—it’s more than 5,000 words, 63 paragraphs, or (on my word processor) nine pages long!
Instead, I’ve read it so you don’t have to. The following is my summary of the speech, heavily abridged for your convenience (but also feel free to skip or skim even this and continue reading below):
¶ 1 — (empty preamble)
¶ 2 — He says that the budget debate is really about “the kind of future we want” and “the kind of country we believe in” (I can agree with that much!).
¶ 3 — (lip service to American tradition of free enterprise, self-reliance, and “a healthy skepticism of too much government”)
¶¶ 4-6 — He says, “through government, we should do together what we cannot do as well for ourselves”, including wealth redistribution. “I’ll go further”: America was not a great country until we started using the federal government for forced income redistribution.
¶¶ 7-8 — He admits that the national debt is a problem.
¶¶ 8-13 — (a tendentious history of deficit spending, 1980-2010, including blaming Bush again for the Obama recession, and claiming that Obama’s stimulus schemes have worked)
¶¶ 14-19 — “We have to live within our means . . . .”
¶¶ 20-21 — He argues that modern American big-government spending programs are generally popular, while voters also want their taxes to be as low as possible, creating a structural problem.
¶¶ 22-23 — He admits that we need to reform the entitlement programs, which represent a huge share of the federal budget.
¶¶ 24-31 — He smears the particular reforms proposed by the only people who have come up with any kind of plan so far for solving the deficit problem. He maligns not only their policy proposals but also their motives.
¶¶ 32-33 — He says warm and fuzzy things about big government.
¶¶ 34-63 — He hawks his own budget plan—not the budget he proposed earlier this year, a different one.
¶ 35 — He redefines big-government spending programs as “investments in the future”.
¶¶ 36-37 — He proposes cutting spending on national defense.
¶¶ 38-40 — Either he thinks more government involvement will magically make health-care markets more efficient and reduce costs without reducing care, or he’s admitting that the government takeover necessarily means rationing care.
¶¶ 41-42 — He smears Republican reform proposals some more.
¶¶ 43-46 — He redefines tax increases as “reduc[ing] spending in the tax code”. He proposes tax increases. He at least claims to be in favor of making the tax code “fair and simple”, but it’s clear that he doesn’t mean a flat tax, and in fact would fiercely oppose a flat tax.
¶ 47 — He proposes “a debt failsafe” which, if the national debt hasn’t been reduced enough by 2014, will “require” Congress and the president to “come together and make up the additional savings with more spending cuts and more [tax increases].”
¶ 48 — (recap)
¶ 49 — He says that he’s sure most rich people would love to give the federal government more money; so we should force them to, just to be sure.
¶¶ 49-55 — He anticipates both real and straw-man critics of his proposal, and makes various counterarguments. He calls the Republican reform proposals “radical”.
¶¶ 56-57 — (lip service to vigorous debate)
¶¶ 58-63 — He implies that people who disagree with him are unpatriotic or un-American.
I think that summary makes him look pretty bad, but the reality is even worse—as commentators have pointed out, he didn’t so much propose particular cuts in military spending, for example, as propose to propose some unspecified cuts at an unspecified future time.
I recommend that you read one or more of the excellent responses, commentaries, and analyses that others have produced in response to President Obama’s speech, and to the existential threat of the debt crisis.
- Keith Hennessey has a detailed, in-depth analysis of the Obama plan (Hennessey warns that his piece is long, but hopes that it will be useful). He notes that on various points the plan “offers no specifics”, “Details are TBD,” etc. “There are three forces driving our long-run government spending and deficit problem: . . . . The President’s proposal addresses none of these forces.”
- Mark Steyn: This speech “more or less declared to the world that this administration has no plan, and has no plan to plan on getting a plan anytime soon.”
- Jonah Goldberg: “The only good news to come from all of this is that the battle is now joined.”
- Victor Davis Hanson: “The president gave the sort of scare speech he not long ago warned against, and blasted the income-tax rates he not long ago agreed were necessary — in a context in which he has just presented a budget with a $1.6 trillion deficit of the sort he now says is unsustainable, . . . .”
- Mark Steyn: “Most of the ‘futures’ we’ve ‘invested’ in are already at record levels of spending.”
- Charles Krauthammer: “The president’s speech was a prose poem to higher taxes — with every allusion to spending cuts guarded by a phalanx of impenetrable caveats.”
That’s the biggest reason to conclude that President Obama and the Democrats are totally unserious about dealing with the debt: They make it sound as if the budget deficit could be bridged mostly, or entirely, with increased taxes on “the rich”, as opposed to cutting spending.
First, think about it in the abstract: The amount of money the government can take from its citizens at any given time is finite—they only have so much. The amount of money that the government might want to spend, by contrast, is theoretically infinite—you can always think of something else you’d like to spend money on, if you had more money. As far as I can tell, liberalism contains within it no limiting principle that would tell us when we have reached “enough” government spending and don’t need to increase it further.
(I’ll put aside, for purposes of this discussion, questions of morality and fairness—that money is not Washington’s to take, and anyway the people at the top already pay a disproportionately great share, and too many people at the bottom pay nothing; it’s easy for them to vote for higher tax rates that will only affect other people.)
Next, consider the concrete reality in which we find ourselves: Has U. S. government spending reached the point where it exceeds the money available through taxation? The simple answer is Yes. This Web site (citing its source) points out that even if the federal government confiscated the entire net worth of every billionaire in America, that would amount to only $1.3 trillion—not even enough to cover this year’s deficit, much less eliminate the debt. This site says that even if the top two federal marginal income-tax rates were doubled (a much greater increase than anyone is seriously suggesting at this point), to 66% and 70%, that would cover less than a fifth of the projected 2011 deficit.
The Wall Street Journal says that even if the income of everyone making more than $100,000 a year were taxed at 100%, it wouldn’t cover this year’s deficit.* (Those last two base their calculations on the IRS’s own numbers.) I assume that these numbers are assuming that higher tax rates wouldn’t hurt the economy and depress tax revenues, which of course they would; so the situation is probably even worse than these dramatic numbers make it sound.
(A fairly sarcastic but fact-intensive video makes the point dramatically.)
In other words, federal spending is much, much too high. It needs to be cut, a lot. Any plan that doesn’t take that into account is totally unserious.
* Correction (August 12th, 2011): The Wall Street Journal notes, “An earlier version of this story incorrectly stated that the total taxable income of Americans earning over $100,000 in 2008 was $1.582 trillion. The correct figure is $3.4 trillion.” The point I was making remains: U. S. government spending has reached the point where it exceeds the money available through taxation.