Federal debt: the genesis.
While I’ve chosen to stay away from politics lately to focus on business, I have to depart slightly from that choice today. Much has been made lately in the media and blogosphere about the national debt, claiming that Obama is responsible for the $2 trillion – and rising – debt. However, the national debt level is a business issue, not just a political issue.
Not only does a sizeable portion of the federal budget go to pay the interest on the debt, it’s very possible that if the debt continues to rise, interest rates on that debt will rise, costing even more to service our debt. It’s kind of like the credit card companies saying we’re no longer sure of your credit worthiness so we’re going to raise your interest rates to slow or stop your borrowing. That debt creates an environment which overtaxes businesses as well as families.
Moreover, as interest rates rise on the national debt, so too do they rise on business borrowing. And the more businesses have to pay in interest on short term and long term business borrowing, the less they have to expand their businesses, hire new workers, and so on. Huge national deficits, simply put, are unsustainable for the nation, for families, and for business.
Regardless, though, of the existing national debt, President Obama has the powers to spend not one dime. That authority is left strictly in the combined hands of Congress.
Article 1, Section 8 of the Constitution states: The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the Defence and general Welfare of the United States but all Duties, Imposts and Excises shall be uniform throughout the United States.
Section 8 and 9 go on to enumerate the powers granted to Congress. Nowhere in the Constitution is the power to spend money given to the President. Nowhere in the Constitution does it say that the President is to develop the Federal Budget.
All powers to raise and spend money are granted exclusively to Congress. The President can only advise and request. It is left to Congress, specifically to the House of Representatives, to decide how to “lay and collect” funds and how to spend them.
So, when did all this debt arise? The New York Times’ analysts dove in the issue.
The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.
You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.
The first category — the business cycle — accounts for 37 percent of the $2 trillion swing. It’s a reflection of the fact that both the 2001 recession and the current one reduced tax revenue, required more spending on safety-net programs and changed economists’ assumptions about how much in taxes the government would collect in future years.
About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.
Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.
About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.
If the analysis is extended further into the future, well beyond 2012, the Obama agenda accounts for only a slightly higher share of the projected deficits.
Nevertheless, the Times makes it clear that if the Democrats are lining up behind Obama policies, the Republicans are not exactly coming out with any viable alternatives. For example, the Times states:
But Congressional Republicans aren’t, either. Judd Gregg recently held up a chart on the Senate floor showing that Mr. Obama would increase the deficit — but failed to mention that much of the increase stemmed from extending Bush policies. In fact, unlike Mr. Obama, Republicans favor extending all the Bush tax cuts, which will send the deficit higher.
Republican leaders in the House, meanwhile, announced a plan last week to cut spending by $75 billion a year. But they made specific suggestions adding up to meager $5 billion. The remaining $70 billion was left vague. “The G.O.P. is not serious about cutting down spending,” the conservative Cato Institute concluded.
What, then, will happen?
“Things will get worse gradually,” Mr. Auerbach predicts, “unless they get worse quickly.” Either a solution will be put off, or foreign lenders, spooked by the rising debt, will send interest rates higher and create a crisis.
I willingly admit I am a social liberal. I don’t care if a person is green, blue, black, white, brown, or yellow. I don’t care if a person likes males or females. None of that is my business, and it doesn’t matter when it comes to business. What does matter, to me as a fiscal conservative, is fiscal responsibility and solutions orientation. Right now, I’m not seeing much of either in Congress, either on the Democratic side or the Republican.
Nevertheless, to blame Obama for the fiscal mess this country is in equates to blaming a newly-appointed CEO of a company on the edge of bankruptcy. It’s like blaming the mouse that enters a house full of holes: damn the mouse but ignore the holes. The job of Congress is to fix the problem, not play one-upmanship. Yet, all we’re seeing out of Congress is party politics, not solutions.