Remember the TV ad where the auto mechanic looks viewers straight in the eye and says: “You can pay me now or pay me later.” The message: if you change your car’s oil and filter every 5,000 miles, you can avoid a disastrous engine replacement later?
The same principle applies to our national debt. Congress can either take steps to control spending and debt now, or watch interest payments swallow up our hard-earned tax dollars and starve needed programs. Ignoring massive federal borrowing will bite our grandchildren hard in the next decades.
We, the taxpayers, now owe over $29 trillion to lenders, of which one-third are foreign governments. Collectively, Japan, China and UK own $3 trillion in U.S. Treasury notes. The debt could go much higher if President Biden’s $2 trillion “Build Back America” is tacked on.
According to the Congressional Budget Office, it would add $367 billion to the deficit over a decade. That means the mandatory interest payment on the debt will jump even higher. For fiscal year 2021 it is $413 billion.
In July, The Peter Peterson Foundation reported over the next 10 years, without any changes in current policies, CBO estimates that interest payments will become the fastest-growing component of the federal budget. By 2031, it will consume 12% of the entire budget, leaving less money for programs.
It is hard to believe, but America’s current debt is so high that it’s greater than our annual economic output, and it is more than the size of the economies of China, Japan, Germany and India combined, Peterson reported in March.
The problem grows over time because $6 out of every $10 in taxes goes to paying for entitlements, most notably Social Security and Medicare. Entitlement spending increases as more people retire and life expectancies are greater. (Biden’s plan adds more entitlements).
Compounding the problem is fewer workers are paying Social Security taxes. For example, in 1950 there were 16 workers for every Social Security recipient. By 2011, it dropped to three and is expected to go to two by 2030. Meanwhile, CBO projects that health care spending by all sectors of the economy — government, business and consumers — will climb to 25% of GDP by 2040.
Earlier this month, Congress passed its $1.2 trillion in infrastructure spending legislation (highways, bridges, railroads, air and sea ports, broad band internet, and mass transit). CBO found it adds $256 billion to the debt over the next 10 years.
Before Congress launches another new $2 trillion in programs, lawmakers must carefully consider the true long-term impacts of what we owe. Those we elect can’t simply low-ball the money required to run the program long term by adding sunsets to new entitlements. Realistically, programs never end.
While the president targets the super-rich and big corporations for tax increases, it doesn’t generate enough money. The true fallout will be an avalanche of new costs thundering down on every American, especially small businesses and middle class families.
Biden’s $2 trillion “Build Back America” increases estate taxes that clobber family businesses and farms; and, lifts the ban on federal income tax deductions for state and local taxes.
Congress needs to consider what money is left over from previous COVID-19 legislation. According to usaspending.gov at the end of September, Congress authorized $4.5 trillion in COVID relief spending of which $3.5 trillion has already been spent and another half trillion authorized for allocation. That leaves another half trillion unspent.
The bottom line is before our borrowing spirals more rapidly out of control, debt impacts need to be a mandatory consideration of what Congress and the president devise.
Don C. Brunell is a business analyst, writer and columnist. He can be contacted at theBrunells@msn.com.