Our generation stands on the precipice of an economic crisis without parallel in American history. This crisis will be prolonged. It will be severe. And it will come sooner than you think. The cause of this crisis is the slow but certain course of the United States government toward a crippling national debt.
The debt currently stands at a stunning $6.4 trillion - the highest it has ever been. But why is this a bad thing? We can start with the most obvious reason - a debt this large is notoriously expensive to maintain. Interest costs constitute one of the heaviest burdens to the federal budget and the U.S. economy as a whole. American taxpayers are billed nearly $350 billion a year - that's almost a billion a day - just to cover the interest. This represents one-sixth of the budget, an amount exceeded only by defense and entitlement spending. It is an astounding sum, but one that the U.S. government is obligated to pay - perhaps forever.
It was only in the 1980s that the debt spiraled out of control due to concurrent spending increases and tax cuts advocated by the Reagan administration. It took over a decade and many difficult choices to bring it back under control. When President George W. Bush came into office, the favorable economic environment held out the promise of budget surpluses as far as the eye could see - surpluses that should have been used to pay down the existing debt. Alas, a round of expensive tax cuts combined with the economic slowdown to completely reverse budget projections, so that yet again Congress requires heavy borrowing. We are back to the structural deficits of the 1980's.
In his 2004 budget proposal, Bush did something no other president has done since at least Lincoln: he proposed major tax cuts in the face of a looming war. At the same time, the government is already experiencing high deficits, raiding the Social Security trust fund, and facing the long-term prospect of huge expenses when baby boomers retire. This policy is, in the words of Sen. Kent Conrad, "breathtaking in its lack of fiscal responsibility."
Just how much does the president suggest we borrow? In only five years, from now until 2008, his budget calls for combined deficits of over a trillion dollars. Even if all this money is borrowed at a relatively low rate of 5 percent, taxpayers from 2008 on will be stuck with an annual rise in interest expenses of over $50 billion - on top of what they already would have paid. And this is an administration whose leader promised not to "pass along our problems to other Congresses, other presidents and other generations."
Within reason, borrowing is fine. People do it all the time - to buy a house, pay for college, or start a business. The main difference between them and the government is that they repay the principal on their loans along with the interest. A proportion of every mortgage payment, for instance, goes to paying back the original loan. The alternative adopted by Washington is to pay only the interest, leaving the principal until the every end. While this lowers annual costs, the problem arises when the loan must be repaid, and Congress realizes that it just doesn't have the money. For a middle-class family, this is like having to repay an entire $150,000 mortgage in one fell swoop. So Congress refinances the debt by borrowing from someone else, repaying the original bondholders and starting the process all over again.
The policy of refusing to pay down the debt is politically convenient. After all, if a piece of the debt had to be repaid each year, that money would have to come from taxpayers. Either spending must go down, or taxes must go up. Regardless of which party is in power, neither is a pleasant prospect. But the long-term costs of procrastination are staggering. The debt will peak at the time that Social Security spending will reach an all-time high, forcing either a huge tax increase or a dramatic reduction in benefits.
If that isn't bad enough, consider the nightmare scenario. There is always the threat that if investors begin to doubt the government's ability to repay them, they might decide to stop refinancing the debt and force a default on trillions of dollars worth of bonds. This would devastate the financial markets, plunging the world economy into turmoil potentially worse than the Great Depression.
Politicians always find excuses for borrowing more. Right now, the White House's mantra is that the recession and war on terror necessitate deficits. Both arguments are false. First of all, the recession is over. Economic growth is slow, but that alone is no reason to borrow. Besides, the administration's own projections call for increased growth over the next five years, but the deficits will persist. Nor is it valid to blame a $300 billion deficit in 2003 on less than $50 billion in homeland security expenses - keep in mind that deficit projections ignore the costs of a war with Iraq. But even if you accept both arguments, a large tax cut that will exacerbate the deficit is absolutely inappropriate at this time, as Alan Greenspan pointed out recently.
To restrain the growth of spending, reduce deficits and move back toward a balanced budget, across-the-board spending limits and a halt to further tax cuts are essential. Tax cuts, whether for the wealthy or even the middle-class, are not one of the "critical national needs" to which Treasury Secretary John Snow recently referred. Mortgaging the future of the country in the name of instant gratification is no longer acceptable. Coming generations should not have to bear the burden of higher interest rates, spiraling inflation and lower private-sector investment - all of which will be the inevitable result of reckless borrowing today.
Bush campaigned in 2000 as a fiscal conservative. It is such a shame that his fiscal policy is now driven by nothing more than short-term political expediency.
Pavel Molchanov is a Trinity senior. His column appears every other Tuesday.
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