National debt to climb whoever wins budget-tax debate

Congress won't ever block an increase in the debt ceiling. Threats to cap it are pure political grandstanding.

Congress spends money without raising enough tax revenues to cover spending. The shortfall must be met by borrowing. If the debt ceiling increase were blocked, borrowing would be prevented. The U.S. government wouldn’t have the funds needed to operate.

If the federal government could not pay its bills, it would default on its debt. Overnight, the dollar would lose its standing as the principal world currency. No longer the home of the world's standard, the U.S. would forfeit leadership. No amount of military might could make up for that setback.

Opponents of raising the lid on the federal debt want the government cut back even if that means stopping Congress from paying its bills. That won't happen.

The debt ceiling could be made automatic or completely abandoned, because it stands in the way of Congress meeting financial obligations it has approved. Some scholars believe the Constitution guarantees payment on the federal debt, so no ceiling bill is required.

The debt service issue is closely linked to tax reform and the size of the federal budget, the main agenda items before Congress in coming months. President Trump may propose reductions for almost all taxpayers, though tax treatment of the wealthiest remains uncertain. Meanwhile, a small part of the budget, only one-sixth of the total, would bear deep cuts.

The underlying issue will be the size and scope of the federal government, brought into sharper focus than it has for many years. New debt will inevitably be created no matter how tight fisted Congress may be, though optimistic budget projections could include a path toward a balanced budget.

Tax cuts would be applied quickly, before next year’s elections. Government budget reductions need to be phased in, so they would take longer. The result? Even if the Trump proposals were adopted, the federal debt would keep on growing.

Trump economists argue that the tax cuts will stimulate economic growth, eventually yielding more tax revenues. Though the federal debt will increase at first, it should come down over a decade, they say.

The Democrats can be expected to argue in favor of keeping most government programs and for a tax increase on the wealthiest slice of the population. They believe that people who benefit from government policies would oppose program cuts and support such a tax increase.

The GOP’s view is that, above all, people want tax reduction. It remains to be seen how the results of the two approaches would compare.

This debate will take place without any in-depth look at the budget itself. Republicans dislike welfare and environmental programs enacted by Democrats and will target them. They will support increases in military spending. The Democrats will defend most existing programs.

Two-thirds of the budget is devoted to meeting the obligations under Medicare, Medicaid and Social Security. Congress requires payments be made to people who meet eligibility requirements, called “entitlements,” because the recipients have a legislated right to the payments.

They are financed in part by payroll taxes, not income taxes. But the payroll tax revenues do not cover the full cost. Besides, Congress has used some of the payroll tax revenues for other expenses. Shortfalls loom in these programs.

The budget will probably do nothing about entitlements, so their financing problems will grow. So will the debt. Congress will continue to allow taxpayers to live in a dream world of public spending, which will become a nightmare for later generations.

Solutions have been proposed to deal with the budget problems. For Social Security, a wide range of measures that includes increasing payroll tax revenues and slowing the growth in outlays have been proposed. Medicare costs can be cut by better controls. Medicaid eligibility needs review and greater uniformity.

What about the debt? Long-term capital spending for facilities that will used for decades could be financed by long-term debt. But borrowing would not be used to meet current spending except in case of unexpected emergencies like recent hurricanes.

Annual spending should be covered by annual revenues. They both should be kept under continuing review and regular alignment. That means no spending without matching revenues. Zero-based budgeting, in which, from scratch, each activity would be subject to regular justification, could be used.

Unless Washington stops playing politics with tax cuts and by ignoring major budget issues, the debt can only grow worse.

But nothing much will happen this time around. Most likely, despite all the talk, we’ll just keep increasing the debt – and the debt limit.