EDITORIAL: A paralyzed congress dances on debt limit

by Algenon Cash

The 118th United States Congress came into session and quickly demonstrated why tight partisan margins could lead to more gridlock and bickering. New Speaker Kevin McCarthy was catapulted onto the national stage when House GOP members attempted to block his ascension to leadership forcing 15 rounds of nationally televised floor debates before relenting. McCarthy eventually conceded unfavorable concessions to a small faction of members to unlock the necessary votes.

The nation has once again hit its spending limit, and under a normally functioning Congress the country’s credit limit would easily be lifted. But these are no longer normal times.

Republicans and Democrats are more at odds than ever, so the gridlock can be expected. But a default on the national debt could trigger an economic catastrophe, severely harm entitlement beneficiaries, leave federal workers unpaid, and essentially devastate a global financial market depending on the full faith and credit of the U.S. Treasury. Unknown to most, but the largest holders of federal debt, happens to be the American public.

Fingers are flying, and no one is accepting responsibility for the $31 trillion American taxpayers have on the fed’s credit card. Republicans quickly recall their opponents’ fiscal sins while Democrats have not forgotten policies ushered in by past GOP controlled administrations.

The national debt is 140% of GDP, and its ballooned mainly because the federal government routinely spends more than what it receives in tax revenue. The last time the federal budget balanced was in 2000 — at the end of Clinton’s administration.

President Bush faced with the most lethal domestic attacks since Pearl Harbor ramped up military spending to unprecedented levels in wars launched first in Afghanistan then Iraq. But he took action without funding the military build ups — no higher taxes or war bonds issued.

Furthermore, Bush cut taxes in 2001 and 2003 to fight against a recession triggered by the dot-com bust in the previous administration. Bush signed a major expansion of Medicare and introduced a new prescription drug program. All costly measures that were completely unfunded.

So when Bush found himself standing on a financial cliff as the country teetered on the brink of another depression, he was forced to spend more taxpayer money to save Wall Street, again adding billions in debt.

President Barack Obama enters office left to deal with the financial crisis triggered under his predecessor, agrees to drop another $1 trillion on economic stimulus. Moreover, he passes his own substantial healthcare reform bill, sends additional troops to Afghanistan, and makes 80% of the Bush tax cuts permanent — all measures completely unfunded with the exception of the Affordable Care Act.

President Trump comes into office with a Republican congressional majority at his back, so he rams through a $3 trillion tax cut along partisan lines. But Trump later encounters his own crisis when COVID triggered a rapid and deep recession in America. Trump responds with an economic stimulus that is four times the size of his predecessor — adding trillions more in debt.

President Biden moves into the White House only to be immediately forced to pass his own economic stimulus to further resuscitate a slumping economy. Biden successfully lobbied a Democrat-led Congress for another $2 trillion in COVID relief. Adding more and more debt.

So if you break these administrations down and do the math, each respective party contributed massive amounts to federal debt. Democrats are responsible for around $13 trillion and Republicans $12.7 trillion.

Both parties encountered unpredictable circumstances, but they also have added whopping sums of money to the nation’s debt load through misguided and short sighted decision making.

The federal budget is large and complex, but it’s not too difficult to understand where the money is going. Around 80% of the budget is allocated to three line items — Social Security, Medicare, and interest on the national debt. The balance is what lawmakers use to keep every federal department and agency operating.

Only three options exist to balance taxing and spending — higher taxes, entitlement reform, and stronger economic growth.

Clinton was able to balance the budget mainly because of the internet boom throughout the 90’s leading to higher incomes and larger corporate profits that flushed the Treasury with cash.

Without stronger economic growth, that would only leave raising taxes or reforming entitlements. Neither are popular options, but the alternative of doing nothing and seemingly driving the country into more debt is not only unsustainable, but dangerous. The downside of the raising taxes option is that it would likely further hinder economic growth.

Lawmakers’ inaction is causing the federal budget to squeeze out much-needed investments in transportation or technology, and Congress has no financial cushion to defend the homeland against a major war, another global pandemic, or even a deep recession. Not to mention every dollar investors use to buy treasuries is a dollar not available to fund startups, grow companies, or fund infrastructure.

Algenon Cash is a nationally recognized speaker and the managing director of Wharton Gladden & Company, an investment banking firm. Reach him at alc@whartongladden.com