With the White House and the House of Representatives still at loggerheads over how to resolve the debt crisis, administration officials are turning up the heat, claiming that Washington has only two choices: increase the governments borrowing capacity beyond the current $14.3 trillion limit or face a catastrophic U.S. Treasury default. If the latter happens, they warn, the government wont be able to pay its debts and will have to stop cutting checks.
But this is a false choice. Theres a third option: Washington can cut spending.
When times are tough, responsible citizens tighten their belts. During the recession, for example, Americans cut spending significantly, while increasing their rate of saving. According to the Census Bureau, personal saving as a percentage of disposable income more than doubled during the downturn, increasing from 1.7 percent in 2007 to 4.3 percent in 2009.
Meanwhile, the federal government did the opposite: It went deeper into debt. The White House wants Congress to authorize even more borrowing, warning that if the debt ceiling isnt increased by August 2, the United States will be forced to default on its obligations and its credit rating will be downgraded, making future borrowing that much more expensive.
This is spin, not fact. The fact is: If the debt limit isnt raised, the Treasury will be forced to reduce spending in other areas to meet its obligations. The government would not go belly upsome services would be cut back or discontinued. But the Treasury would continue to collect some $175 billion per monthenough to meet the governments most pressing obligations and service the debt.
Congress can also balance the budget by selling government assets. For instance, the federal government currently owns some 650 million acres of U.S. land, approximately one-third of the entire country. While some of these lands are natural treasures, the governments holdings also include millions of acres that have valuable commercial potentialfor oil and natural gas exploration, for example. These lands can and should be sold.
Federal land sales would also entail significant reductions in spending. The Department of Interiors budget could be reduced, eliminating unnecessary bureaus and saving nearly $11 billion annually.
Other government functions such as Amtrak, the U.S. Postal Service and the air traffic control system could be operated by organizations other than the federal governmentsaving taxpayers billions more.
Ultimately, our political leaders have a responsibility to find a way to balance the federal budget. Otherwise, new debt will merely be strapped to the backs of taxpayers.
The costs of our nations debt are staggering. A 35-year-old college graduate earning $44,000 per year (the average median income for a college graduate that age) will pay more than $61,000 in federal taxes to finance government debt payments over his lifetime, according to the MyGovCost.org calculator. And now the White House wants Congress to approve even more borrowing.
The debt crisis resonates on a personal level because it reflects a deep-seated American cultural norm of balanced budgets. In fact, most U.S. states have balanced-budget amendments that have forced them to make tough choices to balance their budgets this year. Washington could do the same.
Its time for the federal government to learn to live within its means, by reducing the size and scope of government. The promises politicians will make now are not credible without a rule that holds them to those promises in the future. Perhaps the only way to get there is by amending the Constitution to require a balanced budget.
|Emily C. Skarbek is Research Fellow at the Independent Institute and Assistant Professor of Economics at San Jose State University.|