Only the United States and Denmark have a “debt ceiling”. In Denmark, as the ceiling is approached, the Danish legislature routinely raises the limit without controversy. In the U.S., debt ceiling increases also usually are raised without controversy. Usually, but not always.
The few exceptions occur when there is a Democratic President and Republicans control at least one house of Congress. This year is one of those exceptions. But should there be a fight over raising the debt ceiling?
To answer that question, we need to look at several factors relating to the economy, annual budget deficits, and the national debt.
Republicans tell us we are laboring under a “crushing debt” that is “unsustainable”, and that the Federal government must balance its budget just as families do every month.
That raises a question. What do Republicans mean by “balancing the budget as families do”? If they mean families pay their monthly bills, including payments on whatever debt they owe, then the Federal government balances its budget just as families. It meets it’s monthly expenses and pays what is required on the national debt.
If they mean not having any debt, extremely few families “balance” their budgets as the vast majority of families, probably including readers of this column, have debt and their budgets are not balanced.
If Republicans mean paying monthly expenses, including payments on any debt, and no incurring additional debt, many families do not balance their budgets because they incur additional debt at least in some months. They make payments on their credit cards, but they charge more than they pay, increasing their debt. Or, there is a new car purchase, new furniture, remodeling, or medical expenses that cause their total debt to increase.
Basically, this comparison between families and the Federal government balancing their budgets is intellectually dishonest. The Federal government pays its bills, just as families do. Ironically, Republicans currently are threatening to force the Federal government into NOT paying its bills by refusing to raise the debt limit.
What about the national debt? Is it a “crushing”, “unsustainable” debt? To answer that question we need to look at the total debt divided by annual income. And we again can use the family for comparative purposes. The national equivalent of family income is Gross Domestic Product (GDP).
A family has good (not necessarily excellent) credit and an annual income of $100,000, which is above the national average of about $71,000. They want to buy a new home. Given an annual income of $100,000 and good credit, what is the approximate maximum mortgage loan they can get?
According to a mortgage loan officer, a family with good credit can get a loan of $530,000. That is a loan slightly more than five times their annual income.
Now, apply this to the Federal debt. Today, it is slightly under $32 trillion. TRILLION? That number boggles the mind. But what is our Gross Domestic Product? For 2023, it is estimated to be $23.6 trillion. That means, for 2023, our national debt will be approximately 136% of GDP.
IF a family can carry a mortgage (excluding any other debt they may have such as a car or credit card) of over 500% of their annual income, how is a national debt of 136% of GDP a “crushing” debt? A family making $100,000 annually with a total debt of $136,000 would be considered to be in excellent financial condition. Certainly the government of the United States is at least as credit worthy as any family.
Conclusion: The Federal deficit is NOT “crushing” nor is it “unsustainable”. In fact, the U.S. government can carry a great deal more debt than it carries now without being in any financial difficulty.
Do we want that—more Federal debt? Of course not. Should we be concerned our national debt is increasing every year? Not necessarily. When defending his massive budget deficits, Republican President Ronald Reagan dismissed Democratic concerns about record deficits by pointing out GDP was growing faster than the national debt, even though the debt actually grew faster than GDP in his administration. Still, President Reagan had a point: We should look at the national debt as a percent of GDP, not necessarily the total dollar amount of the debt.
It is sad Republicans make the national debt and the debt ceiling to hold the national economy hostage and endanger the financial security of citizens.
Threatening to shut the government down and default on the nation’s debt to force President Biden into budget cuts that, themselves, will endanger the economic stability of the nation endangers not only our economy, but the world economy. Yet, this is precisely what Republicans are doing.
We also should ask which Presidential administrations have produced the largest increases in the national debt. This gets a little complicated because the Federal “fiscal year” runs from 1 October through 31 September. When a new President enters office in January, he is four months into the fiscal year, and has no control over the Federal budget for the next 8 months. Consequently, we have one year of data for President Biden plus the projected budget deficit for 2023 given we are seven months into the 2023 fiscal year.
Since Presidents G.H.W. Bush and Trump were in office for four years, while Presidents Reagan, Clinton, G.W. Bush, and Obama were in office for eight years, the best way to compare the deficits by each respective President is to divide the deficit increase by their years in office. Doing that we find the following:
Reagan – $23.25 Billion
G.H.W. Bush – $38.75 Billion
Clinton – $17.50 Billion
G.W. Bush – $1.46 Trillion
Obama – $1.08 Trillion
Trump – $1.68 Trillion
Biden – $1.62 Trillion
Clinton was the only one of these presidents to balance the budget, but only for one of his eight years in office. In fairness to Obama, he had a huge budget increase to address the Great Recession. Similarly, in fairness to Trump and Biden, they had huge budgets to fight the COVID pandemic. If we don’t count Trump’s COVID budget, his budget deficits averaged $1.33 trillion. Similarly, Biden is correct when he says the 2023 budget deficit (projected to be $1.4 trillion) is lower than the 2022 deficit ($1.84 trillion).
Yes, these deficits are huge; but if we do not wreck the economy with this intellectually dishonest fight over raising the debt ceiling, our budget deficits are completely manageable. Ideally, however, yes; we raise taxes to reduce the size of the deficit, and even to start paying down the debt. Obviously, no debt at all should be our desired goal.
Ideally, we have what renowned economist John Maynard Keynes referred to as a countercyclical budget—increased deficit spending when the economy is not performing well, smaller investment deficits when the economy is performing well.
We shouldn’t fear deficits, and holding the economy hostage to force budget cuts, literally, is insane.
Editor’s Note: The above guest column was penned by writer and educator Samuel Freeman (pictured above). The column appears in the Rio Grande Guardian International News Service with the permission of the author. Freeman can be reached by email via: [email protected].
