Every couple of years we go through this Chicken Little exercise in which Democrat Big Government – Big Spenders and their DC Uniparty allies (looking at you Mitch McConnell) breathlessly run to the establishment media to claim that America is going to “default on its obligations” unless the debt ceiling is raised to dizzying new heights.
The media – being all-in on the destruction of constitutional liberty and the American economy – obliges with equally breathless reporting of the imminent catastrophe should the debt ceiling not be raised and the out-of-control spending continue.
We should note for the record that the purpose of the debt ceiling increase is to permit the government to pay the interest on existing debt and borrow more in a vicious circle that must end sometime. However, “sometime” is fervently wished by today’s Big Spenders in Congress to be a time when they are not in office to be held accountable for the consequences of their actions.
A few quotes from a recent St. Louis Post-Dispatch editorial urging Republican Speaker of the House Kevin McCarthy to give up the spending fight will illustrate the problem:
McCarthy is trying to play a game of chicken with President Joe Biden to see who will cave first. The deadline is fast approaching before the United States defaults on its debts unless McCarthy and his narrow Republican majority in the House agree to raise the debt ceiling…
Ex-President Donald Trump’s radical MAGA supporters in the House are the ones putting the heaviest pressure on McCarthy to hold the line against Biden. They want to attach future spending limits to the debt ceiling talks, and Biden is holding firm in saying that the debt ceiling is not negotiable because raising it is required to cover past spending that now must be paid for, versus the separate issue of future spending (and future deficits)…
If the United States can’t be relied upon to pay its past bills, the results promise to be catastrophic and with far more expensive political and economic repercussions than what would result just by raising the debt ceiling. A default would send the global economy off a cliff, sparking a revenue-reducing recession and a U.S. credit-rating downgrade. Interest rates would spike on U.S. debt and make it even more expensive for the U.S. to borrow money. McCarthy cannot win if he allows a default to occur…
The editorial goes on to name a list of “GOP hard-liners” who have demanded various and sundry concessions in exchange for raising the debt ceiling. Given the media’s incessant demands for horse-trading and compromise when Republicans are in power, and Democrats want something (usually more spending) this would be comical if it weren’t so infuriating.
So, let’s unpack a few of the claims in the Saint Louis Post-Dispatch editorial.
First, the Biden, and Editorial Board, claim that the debt ceiling increase is required “to cover past spending” is completely bogus. The debt ceiling increase isn’t required to pay last month’s electric bill at the White House. If a debt ceiling increase is required, it is to refinance previous borrowing and theft from the now non-existent Social Security Trust Fund. A debt ceiling increase will allow the government to borrow more to continue that practice. Ending that practice and coming up with a plan to pay Social Security and Medicare benefits without borrowing the money from Red China is crucial to our survival as a first-rate nation. Freezing spending and borrowing would largely accomplish that goal.
Second, no one, especially not Joe Biden or his allies at the Saint Louis Post-Dispatch and other Left-leaning media outlets ever specifies what obligations will be in default if the debt ceiling is not raised. Not raising the debt ceiling simply prohibits the government from issuing new debt, meaning it must pay its obligations from current income. According to the non-partisan Congressional Budget Office, in 2023, revenues are expected to total $4.8 trillion, or 18.3 percent of GDP—well above their long-run average. A debate over what spending could be cut or slowed to bring revenues and spending in line is not just healthy it is necessary.
Finally, the cost of government isn’t what it taxes, it is what it spends. The most recent St. Louis Federal Reserve study (2022) found Federal net outlays as a percent of gross domestic product to be 24.63729 percent. If tax collections are 18.3 percent, you see the problem – the government is spending over 6 percent more of GDP than it is taking in, and the trend is in the wrong direction.
The debate over the debt ceiling increase is one of the most consequential policy debates of our times. We predict the debt ceiling will be raised, the question is will a debate over how and how much to raise it produce a plan to harmonize tax collections and spending?
At some point tax collections and spending must be harmonized. Joe Biden, Congressional Democrats and their allies in the media claim the debate over the debt ceiling is a “game of chicken,” when in reality it is more akin to “riding the tiger.” They are throwing up a disingenuous smokescreen about default to fool voters into thinking the present “spend – borrow from the Red Chinese – spend even more” system can go on forever. It can’t, they know it, but they want to scare Americans into thinking it can, so they don’t have to make the tough decisions required to end it.
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