Management of the national debt is a legitimate issue for the United States today. The capacity of our government to fulfill its constitutional mandates requires a stable and sustainable economy that serves the interests of all our citizens. Developing a strategy for reducing the excessive growth of the nation’s debt is a must. That is not likely to occur in an environment driven by hard right rabble-rousers looking for a quick political score.
Both parties have contributed to the current situation. Democrats have promoted programs that while beneficial to a large segment of the population were not sufficiently funded. On the other hand, Republicans guided by the unproved claims of supply-side economics have implemented multiple tax reductions. For the most part, they have only enriched the wealthy. Partisanship must be put aside if reason is to prevail. The US cannot afford to default on the debt, nor can we continue to prioritize the comforts of the well-off over the needs of the general public.
There is nothing new or unique about the challenge. Almost from its beginning as a nation, the US has had a “national debt.” The first Treasurer of the US, Alexander Hamilton, was adamant that the new national government assume responsibility for all debts incurred by the individual states during the Revolution. This meant creating a national debt of approximately $80 million ($2.6 billion in 2023 dollars), even though anticipated income from federal tariffs and excise taxes amounted to only $4.4 million ($142 million in 2023 dollars). Additional revenue would have to be produced, but Hamilton understood that failing to honor the debt would sink the new nation’s credibility with both domestic and foreign creditors.
Budget deficits are not new either. The US has run budget deficits almost every year since 1790, and always Congress has placed some limitations on the federal debt. Prior to World War I, however, the sums of money involved were relatively modest, and Congress was inclined to authorize borrowing for specific purposes. Generally, tariffs and excise taxes along with land sales covered normal revenue needs. To meet the expenditures of the Civil War, estimated at a little less than $70 billion in 2019 dollars, Congress implemented for the first time a personal income tax, and also issued paper money not backed by silver or gold (“greenbacks”).
It was not until the New Deal that Congress was asked to aggregate bonds under a single debt ceiling ($45 billion). During World War II the debt limit was steadily bumped up to $300 billion. At the end of the conflict the debt ceiling was lowered to $275 billion. Three temporary increases were approved under President Dwight Eisenhower, but the limit was still $290 million when Ike left office.
The War in Vietnam as well as LBJ’s Great Society programs added to the national debt in the 1960s, but modestly. In fact, the Johnson administration left office in 1969 with a budget surplus, the last one until the Clinton administration, thirty years later. In 1970 the US national debt was only $371 billion, an increase of little more than $90 billion over the decade.
Ironically, although Ronald Reagan had campaigned against deficits and debt, the 1980s saw the national debt increase three-fold and reach $1 trillion for the first time. Milton Friedman, the University of Chicago economist who advocating minimizing the role of government in a free market economy was Reagan’s guiding star. His administration reduced taxes and borrowed money to fund a military build-up and the war on drugs.
A brief respite in the growth of the national debt last occurred when the Clinton administration produced four years of budgetary surpluses beginning in 1998. These followed passage of tax increases in the Omnibus Budget Reconciliation Act of 1993, without a single Republican vote in the US House of Representatives, and some reductions in discretionary and mandatory spending.
In a bewildering response to the budget surpluses the George W. Bush administration pushed through two measures, one in 2001 and another in 2003, known as the “Bush tax cuts.” Included were across the board decreases in marginal income tax rates and a phasing out of the estate tax. As a result, $5.6 trillion in deficits expanded the national debt.
Primarily caused by lax federal regulation of the financial industry, the Great Recession beginning in 2007 added substantially to the national debt. It led to average increases in the national debt of nearly $1 trillion annually over the following eight years. When Barack Obama left office, the national debt was nearly $20 billion.
Donald Trump bumped up the debt in his first year with one of the largest tax cuts in US history. The main reductions included: slashing the corporate tax rate from 35 percent to 21 percent, doubling the estate tax exemption, and lowering the cost for companies to repatriate offshore cash holdings. It was anticipated that lower repatriation costs would result in an approximately $1 trillion in additional corporate investments, but the Federal Reserve found that about three-fourths was repatriated and used for stock buybacks. The Trump tax cuts added about $2.5 billion to the national debt.
The final straw in our current saga has been the COVID pandemic. Despite the fact that the US spends nearly twice as much on health care as any other developed nation, our health care system was caught flatfooted by COVID. The response to the health threat was ad hoc and required extraordinary expenditures by the federal government. Additional expenditures have been made to relieve the economic damage resulting from the pandemic.
Roughly $4.5 trillion was added during the Trump administration due to the pandemic, and the debt ceiling was raised three times. All increases received bipartisan support. Under the Biden administration the debt has increased nearly $5 trillion, although some of that money has been targeted for infrastructure projects, expansion of the semiconductor industry in the US, and restoring the capacity of the Internal Revenue Service to enforce existing income tax laws.
The initial act of the slim GOP majority in the US House was passage of legislation to repeal the IRS funding. That will go nowhere, but it sets a very negative tone for future negotiations with House Democrats and with the Biden administration. This is not what the country needs right now.
Obviously, the challenge represented by our growing national debt has developed over a long period of time. The factors that have contributed to the situation will not easily be curbed or eliminated. There is no single quick solution.
Kevin McCarthy as Speaker of the US House of Representatives is now second in the line of succession to the Presidency. That’s a sad prospect for the country if he continues to allow a handful of political extremists to dictate his policy choices.
https://www.smithsonianmag.com/sponsored/alexander-hamilton-debt-national-bank-two-parties-1789-american-history-great-courses-plus-180962954/#:~:text=He%20proposed%20to%20fund%20the,on%20luxuries—notably%2C%20booze.
https://emergingcivilwar.com/2021/07/27/us-government-financing-of-the-civil-war/
https://crsreports.congress.gov/product/pdf/RL/RL31967
https://www.thestreet.com/politics/national-debt-year-by-year-14876008
https://fred.stlouisfed.org/series/FYFSD
https://millercenter.org/1995-96-government-shutdown
https://www.cbpp.org/research/bush-tax-cuts-have-provided-extremely-large-benefits-to-wealthiest-americans-over-last-nine.
https://www.federalreserve.gov/econres/notes/feds-notes/us-corporations-repatriation-of-offshore-profits-20190806.html
https://www.crfb.org/blogs/biden-administration-has-approved-48-trillion-new-borrowing
PERSONAL NOTE:
The South Carolina Humanities Council has added me to its Speakers Bureau. https://schumanities.org/speakers_speaker/sansburyo/
My first scheduled presentation under the program will be Tuesday, March7, at the Cyrill-Westside Branch, Spartanburg County Public Libraries, 525 Oak Grove Road, Spartanburg, SC. Public invited. The topic: ”Electoral College: Abolish or Reform”
Also, I’ll be offering a program in Wofford College’s Lifelong Learning Program beginning March 15 at Central Methodist Church, N. Church Street, Spartanburg, SC. The topic: “The Evolution of the American News Media” 8 Wednesday sessions, 9:30-11:00am Registration opens February 8 For more information: call 864-274-2917