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.