Few elected officials are fighting for the solution we really need: reducing the size of government and the money we must borrow to pay for it. However, some voices have been raised against our nation’s borrowing practices. “Every dollar we pay in interest is a dollar that is not going to investment in America’s priorities,” one U.S. senator has declared. “Instead, interest payments are a significant tax on all Americans—a debt tax that Washington doesn’t want to talk about.”
Like all its expenditures, every dollar the federal government pays in interest must be raised by taxing this generation or by borrowing from the next. But borrowing is just a deferred tax. And as any American who owns a credit card can tell you, buying now and paying later comes with a cost.
What we’re really doing as a nation is purchasing with IOUs. The senator has described it as “shifting the burden of bad choices today onto the backs of our children and grandchildren.” Moves to increase the debt limit he called a sign of “leadership failure” borne out of “our Government’s reckless fiscal policies.”
The senator in question? The former junior senator from Illinois, Barack Obama. The date? March 16, 2006. The size of the debt when Senator Obama made his speech? $8.6 trillion. The size of the debt today? Nearly double that amount.
The average taxpayer in America now owes $142,583 — and this year will pay about $1,400 in annual interest payments (or debt tax) alone. Matters will only get worse. The federal government is projected to spend $44 trillion over the next 10 years. During that time, the Congressional Budget Office predicts that even under the rosiest of scenarios we will add at least $4.5 trillion to the national debt and more than double the cost of our interest payments.
The need for fiscal restraint is urgent. Adopting Mr. Obama’s past opposition to raising the debt limit is the most important and obvious place to start. Doing so will require immediate spending cuts coupled with structural entitlement reforms. Only when we rein in the size and cost of government can we avoid levying devastating taxes now and in the future.
At the end of his March 2006 speech, then-Senator Obama concluded, “leadership means the buck stops here.” Leadership is exactly what America needs now and in the weeks and months ahead. The jury is out on whether or not we’ll get it.
Feinberg is a policy analyst at the Charles Koch Institute who specializes in government spending.