by Steve Levy
Oh, the drama of the debt ceiling negotiations. Both parties use the prospect of a doomsday scenario as leverage to obtain approval of their legislative priorities.
There has to be a better way.
Fortunately, there is.
The time at which to control spending is at the very same time that legislators are voting to increase that spending through the budget process. If you vote to increase spending and create more debt, you need to have an understanding that your countrymen will have to pay the bills that you are laying at their feet.
But both parties have shown an inability to rein in spending. As I elaborate upon in my book, Solutions to America’s Problems, the better way is for Congress to finally pass a balanced budget amendment that requires the federal government to balance its ledger annually, the same way every state and municipality in the union must do.
This is not to say that such a cap should be unbending. There has to be flexibility for natural emergencies, wartime expenditures, severe economic downturns and other unexpected contingencies.
Those piercings of the cap should only be permitted with a supermajority vote of Congress. This proposal would force prioritization of spending without locking the nation into possible draconian responses to the unexpected.
We know on the state level that spending caps work. As summarized by our Center for Cost Effective Government, states with spending caps have lower taxes and more productivity than those that do not. https://www.centerforcosteffectivegovernment.org/wp-content/uploads/Spending-Cap-White-Paper.pdf
In New York, a tax cap imposed by the state on schools and local governments had a dramatic impact on lessening the increase in taxes since its inception. Prior to the cap’s enactment, school district taxes on Long Island were increasing at an average annual rate of over 6%. In the decade after the cap was imposed, the average increase dropped to a mere 2%. This amounted to a remarkable $25 billion in savings to local taxpayers, averaging $7,600 per household.
And it was all because elected boards were forced to prioritize.
It’s time for the federal government to do the same. The amendment would take some time to come to fruition, given that it would have to be approved by three-fourth of the states. But that could be a good thing. It would give our federal leaders adequate time to transition for the day when they will have to ensure that the expenditures they approve on a yearly basis do not exceed the amount of revenue they take in.
Once budgets are balanced, the debt limit becomes far less important, since one of the biggest driving forces in our increased debt has been the need to pay the interest on money borrowed to pay for our annual deficits. According to the Office of Management and Budget, these payments are estimated to total $395.5 billion this year and 6.8% of all federal expenditures.
There was a time that a $300 billion deficit in the early nineties seemed outrageous. But remarkably, deficits were hovering at the $1.5 trillion mark after the real estate collapse, and skyrocketed to over $3 trillion after the pandemic. https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/
But that should have been a one-time deal. The federal government has maintained a “new normal,” still too high deficit level of approximately $1.5 trillion.
The public is eager to see deficits tamed. A Pew poll indicates 57% of Americans cite reducing the deficit as a top priority. https://www.pewresearch.org/short-reads/2023/02/14/facts-about-the-us-national-debt/
So here’s the deal: Republicans should agree to have automatic extensions of the debt limits to correspond to spending that is enacted if Democrats will simultaneously agree to support a balanced budget amendment that would kick in within the next decade.
This debt ceiling brinkmanship has to end.
The United States is already being threatened with losing its preeminent hold on the world‘s currency. Where the dollar was once the main backing of 70% of the world’s transactions, that number has diminished to approximately 60%. https://www.cnbc.com/2023/04/24/economic-and-political-factors-behind-acceleration-of-de-dollarization.html
And that number will continue to decline as China continues to gain influence.
Nothing could be more catastrophic to our world standing than having other nations and investors around the world fearing that the American dollar has lost its value due to an inability of Congress to ensure that we will pay our debts.
The best way to grow the American economy and American standing in the world is to stop spending like drunken sailors and by providing a clear understanding that, when we do spend and borrow, we will pay our bills.
Please note: This opinion piece will also appear in an upcoming issue of The Washington Examiner.
Steve Levy is Executive Director of the Center for Cost Effective Government. He served as Suffolk County Executive, as a NYS Assemblyman, and host of “The Steve Levy Radio Show.”