Gary Palmer and Cameron Smith: Debt > Dollars = Disaster

  Every American who has a credit card has a credit limit. Usually that limit is based roughly on what the credit card company determines the cardholder can reasonably pay off given their income and assets. Recently, U.S. Treasury Secretary Timothy Geithner announced that, in effect, the economic sky is falling in the United States because the federal government has maxed out its own credit card. As of May 16th, Secretary Geithner reported to Congress that the federal government had reached the statutory federal debt limit of $14.294 trillion. He further noted that, to avoid breaching the debt limit, the Treasury could delay payments to federal employee pension funds until August 2, 2011. Rather than suggesting the federal government live within its means by immediately looking for ways to cut back, Geithner suggested that Congress increase the federal government's credit limit.

  The federal debt limit is a statutory limit on the borrowing ability of the federal government. Before 1917, Congress voted on federal borrowing every time the government needed to borrow money for specific federal projects. After that point, in various forms, Congress agreed to grant the Treasury the ability to borrow money, provided that it remained within the statutory limit.

  Imagine an average American who spent far in excess of his annual income, borrowed money against his retirement, and is now asking the credit card company to extend his credit so he can continue the spending spree without paying off the accumulated credit debt. Is that scenario really different than the current fiscal policies in Washington? A cursory review of the federal debt situation reveals economic policies from Congress that look more like the habits of someone stricken with a compulsive spending habit than fiscal leadership.

  Congress and the President routinely spend more than the federal government takes in as revenue. In the process, Congress borrows against receipts designed to pay for Social Security. And raising the debt limit is no different than Congress asking the American people to cover an extended credit line.   

  Rather than face the music, the President and the political left have suggested that the only way for the nation to recover is to accrue more debt and increase tax revenue. The basic liberal fiscal model hinges on taxing and borrowing enough for the government to spend in a manner that "stimulates" the nation's economic engine. The hope is that the government will be able to pay back the borrowed money with the taxes generated from a theoretically ensuing economic boom.

  The liberal model is particularly compelling if lawmakers ignore the exponential growth of the federal debt, historical congressional spending patterns, and the fact that it simply has not delivered as promised. Then again members of Congress would all fly like Superman if details like gravity and physical limitations could be as easily ignored.  

  According to the Congressional Research Service, the debt limit has been increased fourteen times and almost $9 trillion dollars since the end of fiscal year 1996. In what should not come as a surprise to most Americans, the debt limit increases have corresponded to almost exactly the same increases in the national debt.

  Since 1980, average federal revenues have been slightly more than 18% of America's gross domestic product (GDP). Average congressional spending has been roughly 21% of GDP. If Congress is averaging a deficit that is roughly 3% of GDP, how can the United States do anything other than accumulate debt?

  According to the U.S. Department of the Treasury, the last time the national debt decreased from year to year was from fiscal year 1956 to fiscal year 1957. If those figures represented the financial management skills of the average taxpayer seeking a higher credit limit, most credit card companies would refuse to consider doing business with them.

  A recent Gallup poll found that, by a 47-19 margin, the American people want their legislators to vote against raising the federal debt limit. Unfortunately for the spending addicts in Washington, the message is loud and clear that the tax-borrow-and-spend party is over. By turning off the unlimited credit spigot, Americans force Congress to raise taxes and face the wrath of the taxpayer or reduce spending and hear from those whose livelihood depends on federal dollars.

  At the same time, fiscal conservatives should not ignore the inevitable pain caused by suddenly ending our nation's addiction to debt. Our debt-fueled economy created an artificial demand in the marketplace that will result in serious consequences if withdrawn.  Balancing the budget and eliminating President Obama's $1.1 trillion projected deficit for FY2012 could pull as much as 7% of our GDP in borrowed money out of the U.S. economy. Unfortunately, the alternative is leaving unimaginable debt and a falsely buoyed economy to generations of Americans.

  In the end, the true difference between Congress and the average credit card holder is that the average American cannot extend his own credit line. At some point, Americans must call for a course correction from the debt culture in Washington. Taxpayers must compel Congress to cut up the government credit card, get to work, and pay off what our nation owes.

  About the authors: Gary Palmer and Cameron Smith are with the Alabama Policy Institute,  a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society. 

  This article was published by the Alabama Policy Institute.