The United States was founded on the principle that there should be ‘no taxation without representation’. Adherence to that principle helped keep the government small for much of America’s history.
Throughout the nineteenth and much of the twentieth century, those that the States sent to Congress proved reluctant to approve federal largesse. Unfortunately, the federal government discovered a way of overcoming this constraint; rather than raising taxes directly, they figured out that they can simply borrow the money they wanted instead.
Instead of trying to persuade lawmakers to increase taxes in order to be able to spend more, the federal government issues bonds – basically an IOU – in exchange for cash. While Congress has to approve tax increases, it is the Federal Reserve (created in 1913 and not mentioned in the Constitution) that issues bonds with far less democratic oversight.
By borrowing, rather than raising taxes, those in Washington DC have been able to find money for their various boondoggles, without risking the wrath of voters by raising taxes.
To be sure, the federal government has been issuing bonds since the days of Alexander Hamilton, if not before. But it is the sheer amount of recent borrowing that is without precedent.
The total US federal government debt today stands at more than $31 trillion (not billion, trillion). That is the total amount of debt that the US government has managed to accumulate over the past 235 years. But here’s the shocking thing; over half of that total amount of debt has been accumulated since 2008, the year that Barack Obama was first elected.
A tenth of all the US government debt accumulated since the founding of the Republic has been borrowed in the two years since Joe Biden was inaugurated. The American Rescue Plan and inappropriately named Inflation Reduction Acts have indeed been eye-wateringly expensive.
When the government accepts cash from bondholders, the bondholder gets in return a slice of future tax revenue – the interest payment. This might not be such an issue when interest rates are low. But, of course, interest rates have started to rise – and so too has the amount of money that US taxpayers must pay to service the debt that the federal government and Federal Reserve ran up in their name.
The Congressional Budget Office forecasts that annual net interest payments on the national debt would total $399 billion in 2022, but then triple over the next ten years to $1.2 trillion. The American government is already spending more money servicing its debts than it does on transportation, housing or education.
Progressives might insist that we spend tax dollars for wealth redistribution. The effect of their reckless accumulation of debt since 2008 will be to redistribute vast amounts of wealth
from US taxpayers to bondholders. Not quite the wealth distribution they intended, perhaps.
To try to prevent Washington from spending money in a manner that would shame a drunken sailor, there has long been a so-called ‘debt ceiling’. This is a limit on the amount that can be borrowed.
The trouble is that the ceiling keeps on being raised. Indeed, by some measures it has been increased 78 times since 1960, rendering it rather irrelevant.
The current ceiling is set at $31.4 Trillion, and the day is fast approaching when the ceiling will either need to be raised again or spending cut.
Fortunately, thanks to the intransigence of a handful of Republicans, the 118th Congress is committed to having a vote to decide if the ceiling should be raised, or spending curtailed.
After two decades of reckless spending, which risks bankrupting the United States and diminishing our status as a superpower, will those we elect insist that the federal government lives within its means? Or will we see more of the same?
This is going to be a key moment for Congress and America.
Douglas Carswell is President & CEO of the Mississippi Center for Public Policy. He was previously a Member of the British Parliament.