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Sides of the coin: Balanced budgets and the 2020 election

politically savvy

Editor's note: The following two columns are the first installment of Duke Political Union's new series, "politically savvy." Once a month, two columnists from different ideological backgrounds will offer their opinions on the same issue. This month, Stephen Kosonocky and Bryn Lawson address federal debt and spending.

It's time to rein in the debt

A couple of weeks ago I was watching the Democratic debate. As usual, I saw the oft made plans for universal healthcare and a variety of new welfare programs such as Universal Basic Income (UBI). 

What really struck me, however, was Elizabeth Warren’s consistent failure to respond to claims made by her fellow Democrats that her spending plans were not feasible without raising taxes. Fundamentally, the federal government has consistently failed to balance the budget over the last couple decades, resulting in massive increases in debt.

Governments maintain “balanced budgets” when their revenue exceeds their expenses. However, governments can avoid balancing their budgets when debt can be issued to pay off excess expenses.

Many governments recognize this is not sustainable. Nearly every US state has some sort of stipulation requiring a balanced budget. Nevertheless, the federal government has never had such restrictions on its ability to run a budget deficit. Federal deficits have run in the hundreds of billions for the past several decades. Indeed, the last year we had a balanced budget was 2001.

Fundamentally, this problem is caused by excessive spending and tax decreases. The spending part is obvious. When the Congress increases spending it is often politically difficult to raise taxes. This is why Warren refuses to answer how she would pay for her policy proposals. If implemented, these policies will likely be paid for through taking on more debt.

Since taxes are politically undesirable, the most feasible way to account for new expenses is through debt. George W. Bush realized this during the Wars in Iraq and Afghanistan. Although these wars cost billions, the Bush administration lowered taxes instead of raising them. This combination of tax cuts and war kept support high on both the foreign policy and economic front. This was of course paid for through more debt. Although issuing more debt may not have been the best long-term option, it was certainly the most politically feasible.

This brings us to a more recent example: the Trump tax cuts. Fundamentally, I support any tax cuts, and Trump did an excellent job in lowering corporate tax rates (although there were some problems with changes in rules on income tax deductions). Roughly speaking, Trump’s tax cuts  decreased government revenue by close to $275 billion in 2018, not taking into account the increase in economic growth caused by the tax cuts.

While $275 billion is a great number to start with in terms of tax decreases, it is necessary to also decrease spending to correspond to the lower revenue. However, this is also politically undesirable. Just as raising taxes is unpopular, so too is decreasing spending. Some constituency will inevitably lose out from a spending cut—and they could be a key group in a battleground state. Accordingly, tax cuts, just like increases in spending, are often paid for through debt.

To end, I will share the per person value of the American national debt. The figure is $69,458. That’s $69,458 for every man, woman, and child in the country. Now ask yourself, is it fair to saddle future generations with such a burden for the sake of political desirability?

Stephen Kosonocky is a Trinity junior and a columnist for Duke Political Union.

A 'balanced budget' is an unreasonable goal

While it is critical to hold candidates accountable for their spending plans and ensure they are rational and sustainable, holding candidates to the standard of a “balanced budget” is, at best, impractical and, at worst, a great obstacle to growth.  

A balanced budget is far from the global standard of national budgets. According to the CIA, in 2017, out of 222 countries, only 41 had balanced budgets or budgets with surpluses. Furthermore, the vast majority of the countries in this category were smaller or less developed nations with smaller, easier to balance budgets.  The US is clearly not alone in its decision to engage in deficit spending. If, as Stephen says, not maintaining a balanced budget is “failing,” then 72% of the world is failing.

While debt, for many, is a frightening enigma, retaining a certain amount of debt, on both a personal and national level, is a healthy practice.  The average US household has $132,529 in debt, much of which is from mortgages.  This seems like a frighteningly large number, but, for most people, this debt is sustainable and allows them to further themselves financially in ways that would not be possible without healthy debt.  The same is true for the debt accrued by a national government.  Deficit spending allows the government to build credit with other nations, maintain alliances, and build up its infrastructure and support programs.  Without it, as can be seen by the effect of Germany’s “debt brake” (a national policy which requires the country to run a budget with a deficit of no more than 0.35% of GDP) on the country’s infrastructure, growth halts.

When you boil it down, a balanced budget can be achieved by decreasing spending, increasing revenue from taxes, or some combination thereof.  Accordingly, the $265 billion decrease in tax revenue caused by Trump’s tax cuts clearly do not bring the U.S. any closer to the “goal” of a balanced budget—though I argue this should not be the goal in the first place.  

To require the nation to maintain a balanced budget is to ignore that economies move in cycles.  There may be years in which maintaining a balanced budget is practical, but there are certainly years where it is harmful.  Since recessions result in decreased income, and therefore decreased revenue from taxes, a balanced budget would require the government to decrease spending during recessions, which would exacerbate the effects of downturns on individuals and corporations alike.

At the end of the day, deficit spending is a government’s way of investing in itself.  If we are interested in remaining an economically competitive nation that supports its citizens, we must be willing to invest in ourselves.  While there is, of course, a point where deficit spending is unsustainable, it is highly unlikely the US has reached that point. 

In 2017, the nation clocked in at 131 of 222 countries in terms of budget balance (revenue or deficit) as a percentage of GDP.  Falling in the 59th percentile, the US’s deficit spending practices are arguably as “normal” as you’ll find.  It is true that “normal” practices are not inherently the best practices, but in the case of government spending, countries have had hundreds to thousands of years to reach a proper equilibrium, and the US’s spending falls near that equilibrium point.  There is no indication that there is genuine cause for concern in our “imbalanced budget.”

Finally, to consider the “per person value of the American national debt” alone is misleading.  While that figure is $69,458, no individual American will ever be asked to cough up that value at any time or over the course of any time period.  In contrast, the average earner pays $355,366 in taxes in a lifetime.  Regardless of your stance on tax increases, it is clear from these numbers that, if reducing or capping the debt became a strong national interest, it could be done through raising taxes. There is more than meets the eye to numerical measurements of debt, and we would do well not to fear them without doing research into their meaning.  While a balanced budget sounds like a clean solution to a big problem, it is not a solution, the problem is not big, and the problem is not a problem.

Bryn Lawson is a Trinity junior and a for Duke Political Union.

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