Wednesday, July 18 , 2018, 10:10 am | A Few Clouds 69º


Veronique de Rugy: Should Congress Cut Up Uncle Sam’s Credit Card?

Imagine that each month, you spend $2,000 more than you earn and charge the difference to your credit card. You make interest payments but never attempt to pay down your debt, instead just letting it grow.

There will inevitably come a time when you have to ask the credit card company to increase your limit. That's how Uncle Sam has handled his spending and, as a result, debt.

Now, come Feb. 28, he hopes that his ability to borrow will be extended once again.

This is where the analogy between you and the federal government ends.

In your case, if you ask the credit card company for an increase in your balance limit, it'll be approved only if the bank trusts you. However, when Uncle Sam wants an increase, he asks Congress to approve an increase in the debt ceiling, and then the Treasury Department can go to domestic and foreign investors for more money.

In the past few years, some in Congress have questioned the tradition of approving the request to borrow more money without any conditions to repay or reform bad spending habits. They have clashed with other lawmakers who believe the debt ceiling should be raised and the country should go into more debt with no questions asked.

To be sure, today there are plenty of lenders willing to give the United States more cash in exchange for relatively low interest rates. But Congress' approval is important.

When you ask your credit card company, it's your credit score and financial sanity that are on the line. When Uncle Sam wants more money, we, the American people, will pay the price if something goes wrong.

Congress is supposed to watch after our interests. It fails to do so, as evidenced by the growth in our spending and borrowing needs without a requirement of some degree of fiscal responsibility.

In recent years, however, this has forced a discussion about our government's insatiable appetite for debt.

This matters because there will be a point when investors will no longer be willing to extend more cheap capital to the United States. It's not likely that they'll stop lending us money, but they very well could demand much higher interest rates than we're expecting them to charge us.

Even before that, our overspending habits will have a high price tag.

Because of the demographic pressure of baby boomers aging, our spending is set to explode. According to the Congressional Budget Office, total outlays will go from roughly $4 trillion in 2018 to $6.6 trillion by 2027

Revenue will fail to grow as fast as spending, and our deficit will increase by $900 billion, along with the amount of interest we pay for that debt. The CBO calculates that in 2018, the cost of interest on our debt will grow from $307 billion, or 7 percent of total spending, to $818 billion, or 12 percent of spending, by 2027.

That's more than the government will spend on all its "investments," such as research and development, education, training, and infrastructure.

The long run looks even worse, with interest payments consuming 21 percent of all spending in 2047. That's $1 of every $5 the federal government spends going toward interest on our debt.

Considering the underlying growth in entitlement spending — from 55 percent of today's budget to 70 percent by 2047 — you don't have to think too hard to imagine what it means for other parts of the budget, such as education and infrastructure.

This also assumes that interest rates will behave as projected by the CBO.

In December 2015, the Committee for a Responsible Federal Budget estimated that an increase of a half-point above the projections would add $850 billion to the deficit over 10 years, while a 1-point increase would add $1.7 trillion. A return to the average rates during the 1980s would add $6 trillion to the deficit.

Having more deficit and more debt means less ability to respond to recessions, foreign attacks and other emergencies if needed, not to mention higher taxes in the future.

These numbers should scare lawmakers. But they don't.

After passing tax cuts that Congress wouldn't pay for with spending cuts, the Republicans won't reform entitlement or welfare programs in 2018.

They will, however, add to the country's credit card debt by jacking up spending on defense and infrastructure.

Think about that when you hear talks about raising the debt ceiling again in February without adopting fiscally responsible measures.

— Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University, a columnist for Reason magazine and the Washington Examiner, and blogs about ecomomics for National Review. Click here to contact her, and follow her on Twitter: @veroderugy. Click here to read previous columns. The opinions expressed are her own.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made through Stripe below, or click here for information on recurring credit-card payments and a mailing address for checks.

Thank you for your vital support.

Become a Noozhawk Supporter

First name
Last name
Enter your email
Select your membership level

Payment Information

You are purchasing:

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover
One click only, please!

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >