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America is Bankrupt and Republicans Couldn’t Care Less

The United States is effectively bankrupt, but that doesn’t matter to the GOP. Once evangelists of fiscal responsibility and scourges of deficit spending, Republicans today glory in spilling red ink. The national debt is now $20.6 trillion, greater than the annual GDP of about $19.5 trillion. Alas, with Republicans at the helm, deficits are set to continue racing upwards, apparently without end.

This flood of red ink will increase. Last year the Congressional Budget Office figured the U.S. was going to again run trillion dollar deficits around 2022. An extra $10 trillion would be added to the deficit over the following decade.

But under Republican fiscal “stewardship,” analysts now believe the deficit could hit a trillion dollars next year. Why? Congress relaxed the sequester, eliminating its modest pressure for fiscal responsibility, and approved disaster relief, without making any corresponding spending cuts. Legislators also inflated military outlays, even though much of the Pentagon budget constitutes defense welfare, subsidies for prosperous and populous allies.

Even after the most optimistic accounting for the impact of increased economic growth, the tax bill will still add $500 billion to $1 trillion to the deficit over the coming decade. (In fact, those estimates probably understate the final cost since Congress is likely to extend provisions set to sunset in order to meet Senate budget rules.) If the president and Congress come up with an infrastructure bill, even more red ink will flow. The Committee for a Responsible Federal Budget predicts deficits of $1.05 trillion and $1.1 trillion in 2019 and 2020, respectively.

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Welcome to modern Republican budgeting. Complained Congressman Walter Jones, the North Carolina Republican who has become a GOP dissident of sorts: “At the time I joined, the Republican Party was very outspoken about the debt of the nation. …I look at where we are as a nation now, and the Republican Party doesn’t stand for less government and less spending. It spends like no tomorrow.” Congressman Justin Amash, Republican of Michigan, was equally critical, telling Reason’s Matt Welch: “It’s looking as bad as any time I’ve seen I’ve been in Congress.” Legislators, Amash says, continue “to move in the wrong direction.”

The last time the deficit ran this high was 2012, part of a four-year, trillion-dollar-plus spending run in the aftermath of the financial crisis and ensuing bailout tsunami. This time Washington is breaching the trillion dollar barrier during seemingly good economic times.

Last year’s CBO assessment was sobering enough. Deficits were to rise due to accelerating Social Security, Medicare, and Medicaid spending and rising interest costs on the growing debt, “accompanied by only moderate growth in revenue collections,” which will be even more moderate due to the tax cuts that took effect on January 1. Added the CBO: “Those accumulating deficits would drive up debt held by the public from its already high level to its highest percentage of gross domestic product (GDP) since shortly after World War II.” Which constituted genuinely unique circumstances, the worst conflict in modern human history, requiring an enormous financial commitment by the Greatest Generation, who borrowed money to, well, save the world.

Alas, the projected numbers continually worsen. Last June, the CBO offered its updated estimate, which figured greater deficits and debt since just six months before. Now those numbers will be higher, though the agency has yet to release its estimates. The years beyond look even bleaker.

The CBO focuses on debt held by the public, excluding that nominally “borrowed” by the Treasury Department from the Social Security Administration (which represents unfunded but not legally vested future liabilities). Using this calculus, the CBO warned: “As deficits accumulate in CBO’s baseline, debt held by the public rises from 77 percent of GDP ($15 trillion) at the end of 2017 to 91 percent of GDP ($26 trillion) by 2027. At that level, debt held by the public would be the largest since 1947 and more than twice the average over the past five decades in relation to GDP.”

That, however, is just the start. The agency continued: “Beyond the 10-year period, if current laws remained in place, the pressures that are projected to contribute to rising deficits during the baseline period would accelerate and push debt up even more sharply. Three decades from now, for instance, debt held by the public is projected to be nearly twice as high, relative to GDP, as it is this year—a higher percentage than any previously recorded in the nation’s history.”

Such a red ink tsunami likely would result in all sorts of fun. The agency pointed to much greater interest costs; not only will the amount of debt rise, but rates likely will climb as the Federal Reserve continues to step back from a decade of loose monetary policy. Former federal budget director David Stockman figures that the Fed will be dumping some $2 trillion of bonds that it accumulated to stimulate the economy. Over the next decade the CBO predicts that total interest payments will rise from about $300 billion to $800 billion, making it one of the largest federal “programs.” Indeed, that is more than the CBO expects the Pentagon to spend.

By reducing total saving, federal borrowing would result in a smaller capital stock. Thus, “productivity and total wages would be lower,” which means less economic growth, smaller taxable incomes, and less tax revenues. Washington would have to tax or borrow more, while people would earn less and have to pay more to government.

Finally, warned the CBO, “the likelihood of a fiscal crisis in the United States would increase. There would be a greater risk that investors would become unwilling to finance the government’s borrowing unless they were compensated with very high interest rates. If that happened, interest rates on federal debt would rise suddenly and sharply.” Imagine a repeat of 2008, when the president and Congress borrowed wildly to bail out most every failed institution. Only this time it would come at a much higher cost, likely to create a fiscal crisis when the bills came due.

Yet neither Democrats nor Republicans demonstrate the slightest concern about the fiscal cliff over which they are taking the nation. Once it was possible to believe in the theory of “starving the beast”: deny Uncle Sam revenue and he would have to spend less. But legislators quickly worked around that, funding their priorities through borrowed funds.

Democrats want more money to spend so they naturally prefer increased revenues. However, tax cuts create no barrier for them, as they cheerfully embrace deficits as “stimulating the economy.” They’ll spend as much as possible at whatever level of debt.

Congressional Republicans prefer to spend while pretending to be fiscal hawks. They want to cut outlays in general but few programs in particular. The president likes and defends the expansive entitlement programs that threaten to bust the budget. Almost every other federal program has at least some GOP backing. Military hawks are the worst, pushing to bury the Pentagon in cash in order to subsidize wealthy allies, fix failed states, and join other nations’ foolish wars.

Ironically, fiscal responsibility appears most likely with divided government. Argued Amash of rising spending: “I think this tends to happen when one party has full control of government. That party starts to go on a spending spree, and stops worrying about the debt and deficits.” The best hope may be when congressional Republicans hold the purse strings and have a partisan reason to limit the executive branch. Even then, though, at best the inexorable rise of federal outlays slows. It has been a half century since Uncle Sam’s allowance was actually cut.

Of course, better economic growth, spurred by both deregulation and tax cuts, should help ameliorate the impact of increased debt. But slowing the deficit increase is not enough. The U.S. will still be heading into the same abyss, only at a slightly slower speed.

The federal budget is a bit like North Korea: there is no obvious answer. Since any response is immediately painful while the threat looms far in the future, politicians across the political spectrum prefer to leave the problem to their successors. Today’s profiles in courage simply hope to finish their terms before catastrophe arrives. The American people are and will always be the losers.

Washington is filled with partisan battles these days. But rarely are they fought over the most important issues, such as a promiscuously interventionist foreign policy and recklessly spendthrift fiscal policy. Republicans should stop play-acting as fiscal conservatives. They should start living up to their rhetoric—or admit that they are little more than Democrats Lite when it comes to fiscal responsibility.

Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to President Ronald Reagan, he is author of Foreign Follies: America’s New Global Empire.

62 Comments (Open | Close)

62 Comments To "America is Bankrupt and Republicans Couldn’t Care Less"

#1 Comment By EliteCommInc. On January 22, 2018 @ 7:46 pm

“Economic growth cannot work indefinitely in a finite world even if it has worked in the past. Government bankruptcy will be our lot in the near future. I ask TAC commenters if they believe that destruction of government through bankruptcy is a contrivance or an irresponsible over sight? What is said on the right, leads me to believe that the actions of the right to destroy government is contrived, not an oversight.”

well, it’s finite in a sense. But to the extent that people all over the planet want stuff, and that people are constantly replenished who want stuff – the economy despite shifts in space and execution will continue. As long as their are people, there will be commerce.

Whether bankruptcy is a bane or a boon is hard to tell. It is a common fixture among the wealthy to reorganize/restructure. While, a negative, it does not spell the end if one has something to build on. And nation states usually do.

Conservatives do not want to destroy government, they generally desire it to smaller as to impact and efficient, so to interfere in people lives but little.

That last sentence is almost a laugh under te circumstances.

#2 Comment By He Better Focus On January 23, 2018 @ 12:11 am

@Mike Dange : “Thank goodness we have a businessman in the White House to lead us in this economic reform/process.”

OK. I just wish he’d actually do some economic reforms instead of dragging us deeper and deeper into the Middle East. As it is, he spends more time doing favors for Israel and Saudi Arabia (and giving them more of our money and our government’s time and focus) than he does stopping immigration, stopping foreign workers from taking American jobs, or fixing broken trade deals.

#3 Comment By moslerfan On January 23, 2018 @ 12:18 pm

In the bad old days, when the King needed sailors for his warships, he sent out press gangs to pick up able-bodied men off the street. And when he needed quarters for his troops he put them up in your bedroom (board included). And if you refused there were draconian consequences. Today we do it differently. The government prints up a bunch of things they call dollars and offers them to the private sector as payment for goods and services, including military pay and salaries for public employees, payment for infrastructure development, and every other kind of public spending. The government motivates people to accept these dollars by requiring that taxes be paid with these same dollars. And if they refuse there are draconian consequences. That’s government finance in a very small nutshell; ridiculously simplified but 100% correct in every way.

Bankruptcy happens when you run out of dollars and can’t get any more. Quite clearly, there is no way to fit bankruptcy into this picture of government finance. Inflation or unemployment, yes; bankruptcy no.

Mr. Bandow is not just wrong about policy, he’s wrong about the nature of reality.

#4 Comment By EngineerScotty On January 23, 2018 @ 7:12 pm

Bankruptcy happens when you run out of dollars and can’t get any more. Quite clearly, there is no way to fit bankruptcy into this picture of government finance. Inflation or unemployment, yes; bankruptcy no.

Only if you are a sovereign currency issuer, with the power of seigniorage at your disposal.

Which applies to the United States, and to most sovereign nations. It doesn’t apply, however, to the several States, nor to those European nations who replaced their native currencies with the Euro.

#5 Comment By Rich Mathis On January 24, 2018 @ 9:29 am

Congress will never pay off the national debt. They should stop pretending.

#6 Comment By SteveK9 On January 24, 2018 @ 8:27 pm

I’m sorry, but it idiotic to say that the US is ‘bankrupt’. That betrays a complete lack of understanding of ‘money’. Money does not grow on trees, nor can it be found in a mine. It’s a type of score and the scorekeeper can do whatever they want. The US government can create dollars with, as Ben Bernanke once stated ‘with keystrokes’. Not that this is without consequence. Our ‘deficits’ would have created high inflation, but for a simple explanation. Foreigners want to accumulate dollars … it is the ‘reserve’ currency and world-wide medium of exchange. This is where all those ‘extra’ dollars go. Is there a limit? Seems to be very, very high, but if the dollar loses its place to some extent, then those dollars could come back. We would then run a huge trade surplus. If we could not re-industrialize and raise productivity, then we could see high inflation. That is all, not that it would necessarily be painless. I doubt it would happen so fast as to really be painful … we could all go back to work, actually doing something useful.

#7 Comment By Don On January 25, 2018 @ 9:45 am

Mr. Bandow is correct, though he understates the value (and extent) of economic growth driven by better (lower and simpler) business taxation. However, this horrendous dent situation can only be resolved via three non-exclusive methods: 1) a return to free market capitalism so as to stimulate maximal growth; 2) massive FedGov spending reductions (Trump could get some of this done, if he were tougher with his veto, while simultaneously making the case to the American people); and 3) historically unprecedented but perfectly feasible mass FedGov asset privatizations. Why does no one anymore, not even libertarians, talk about privatization, with all proceeds earmarked for National Dent reduction?

#8 Comment By jon On March 27, 2018 @ 3:11 pm

Well what would you expect, “Property & Casino bankrupts look familiar”….

#9 Comment By jon On March 27, 2018 @ 3:12 pm

Are we expecting something different, similar to Casino & Property bankrupts ring a bell…

#10 Comment By Desentupidora em curitiba On April 4, 2018 @ 5:05 pm

Great article, I’m sharing, on facebook and I would like to leave my thanks.

#11 Comment By Don On September 9, 2018 @ 12:25 pm

All the foreign countries that are buying up American business,China for number one will have control over us in all ways.Our independent ways are sure to go with them.What I have seen and heard that both parties are to blame and there is no correction in site.They will call the one who will try to correct this problem the ANTICHRIST but that will be wrong.They will go after the liars and thieves in our society and brush them off as bad.World War 3 will not correct our problems it will just kill off millions to try to get back in sync.The future controllers will be worse then we have now.Maybe if we knew we had to come back after this life we would all act better in this one.

#12 Comment By Lynn On November 26, 2018 @ 8:41 pm

If they would stop giving out handouts, free food, and free money they wouldn’t be losing so much money.
Make people work. People who sit at home on their
ass getting a government check does not pay taxes,
they only take and take and take.