The House of Representatives recently passed a bill to provide $14.3 billion in federal aid to Israel. Usually spending bills do not include a funding source, meaning that the funds will have to be borrowed, which increases both the annual spending deficit and the public debt. This time a more sensible approach was taken.
The bill had the support of all but two Republicans and 12 Democrats, so it was bipartisan. The unusual part of the bill is that it included a funding source. That means it will not add a dollar to the deficit or the public debt. This is a sensible approach.
For decades, but mostly since the huge annual spending deficits that began in 2010, the federal government has grappled with methods to reduce the deficit and slow the rate of growth of the public debt. While nearly all legislators favor reducing the debt, no solutions have been implemented.
The result is that the public debt has skyrocketed. In 2009 the total public debt was about $12 trillion. That total has accumulated since the 1940s. By 2023 the public debt had ballooned to $33 trillion, nearly tripling in 14 years. All Americans knew that something must be done to reduce annual deficits and slow the growth of the debt.
In spite of all the rhetoric in the last 15 years, nothing was done. Annual deficits in excess of $1 trillion became accepted.
The resulting total now costs American taxpayers almost $500 billion annually in interest expenses. That figure will grow substantially in the coming years. That will happen for two reasons.
The Congressional Budget Office forecasts annual deficits exceeding $1 trillion per year in each of the next 10 years. Worse, the interest rate on future debt will lead to a doubling of annual interest within a decade. The reason is that while the amount of debt is growing, the cost of the debt is growing much faster.
When an annual deficit occurs, the government finances the deficit by selling 10 year or 20 Treasury bonds. The $20 trillion in debt incurred in the last 13 years carried an interest rate in the 1 ½% range. Today the interest rate is three times that. Because inflation is likely to remain stubbornly high for at least the next few years, the high interest rates will continue. That means the annual interest expense will grow rapidly.
There is no program in place to ever pay that debt off. So, when a 10-year bond that carried a 1 ½% interest rate matures, new bonds are sold to repay the matured bonds and the debt is rolled over. The new bonds carry a 4 ½% rate, so the annual interest expense on the new debt is three times higher than the debt it replaced.
A responsible government leader would look for a solution before the interest expense consumes $1 trillion annually. A reasonable solution is to have the government approve a funding source for each new spending bill. That means the spending can occur without adding to the deficit.
That’s exactly what Congress did when it passed the Israeli aid package. In this case, Congress said that the recently approved $80 billion appropriated to the IRS was excessive. It is excessive mostly because the vast majority of taxpayers do not cheat on their tax returns. That means the IRS does not need $80 billion of additional funding.
Some will disagree with that statement. Some say that the highest income earners do not pay their fair share of income taxes but rather find loopholes that allow them to pay less. The obvious answer then is to close the loopholes rather than weaponize the IRS.
Some like New York Times columnist Paul Krugman say that taking funds from the extra $80 billion given to the IRS “would undermine the ability of the Internal Revenue Service to crack down on wealthy tax cheats. This should be a major scandal.”
That’s a bunch of poppycock from an economist who believes that successful wealthy Americans constantly take advantage of the average taxpayer by cheating on their taxes.
Congress took a responsible step when it linked a funding source to increases in spending. This example should be followed before the public debt becomes a too great burden for our children and grandchildren.
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