How Congress can flatten the curve for small business
How the $23 trillion debt crisis in America affects your own money
For many Americans, the debt that Congress racks up year after year seems like a faraway problem, both in distance from Washington and years in the future. However, the ferocious growth of the national debt monster is one likely to consume us all sooner rather than later. While President Trump seems to be allowing the problem to grow, Democrats are ready to let it sink the economy and your financial stake in it.
Debt crises have a particular way of fomenting deep political and social change. Before the French Revolution, the country struggled with massive debt from spending on war, colonies, and major projects like the Palace of Versailles. As historian John Shovlin noted, "It is a truism that the French Revolution was touched off by the near bankruptcy of the state."
During the European debt crisis in the last decade, Cyprus accepted a bailout that required its citizens to foot much of the bill. The original plan was for all private bank accounts to pay in to cover costs. In the rejected plan, accounts under 100,000 euros were to have more than 6 percent in assets seized by the state, and those accounts above 100,000 euros were to have nearly 10 percent taken. The actual deal took between 40 percent to 60 percent of assets from the accounts above 100,000 euros.
If Cyprus forced its own citizens to give up their already taxed earnings to cover that $23 billion debt bailout, imagine how our federal government would handle a debt load 1,000 times larger. The outstanding $23 trillion is one that neither political party in Washington is willing to tackle. Trump allowed for massive spending, even during healthy economic times. When the next terrible recession hits the country, the bailout package might not be for the large banks, but rather for Washington to keep functioning.
There might be a bit of light at the end of the tunnel. The White House budget intends to reduce government largesse with proposals to trim the edges, including $53 billion in contract abuses, $18 billion in improper tax refunds, and closer oversight on federal agency spending. In many ways, however, these are relative window dressing for an annual deficit that is approaching $1 trillion and likely growing. The fact that Congress will not accept this budget as written means the can will be kicked further down the road. After all, Congress rejected modest cuts three years ago.
While Trump is letting this problem to develop much further, Democrats seem to want to create an even more serious debt crisis during the next administration. For starters, the spending plans by the candidates make Trump and even Barack Obama look like skinflints. Gone are the days that John Kerry wanted to look like a fiscal hawk by attacking George Bush for $87 billion to be spent on the Iraq War. The Democrats who are seeking the White House this fall are using their soapboxes to call for multitrillion spending proposals without any spelled out means to pay for them.
Then there are promises of steep new taxes, onerous regulations that will kill the financial and energy gains of the last three years, and an unbridled sense of federal power, Democrats will pair this tremendous spending with an almost guaranteed recession. Considering that the last recession almost toppled multiple European countries, how will the United States handle a worse recession with much higher debt loads? Democrats have made plans based on the false assumption that economic growth can reduce the deficit, while they craft policies to induce another crash.
Even the Trump tax cuts were partially based on some similar assumptions without major budget cuts. When that happens, what will be the effect on your wallet? First, the reality of an economic "bail in" similar to Cyprus is always present. Second, the last time the government pushed debt above 100 percent of gross domestic product was due to the Second World War, when the government had asked citizens to pitch in by buying bonds.
Massive debt spending is often followed by a massive hangover, just as spending on social initiatives, the Vietnam War, and the oil crises of the 1970s led to harmful stagflation. A combination of taxes, high inflation, and unemployment sunk the economy before the reforms under Ronald Reagan. If Democrats are looking for a clear precedent for their current economic plans, including a ban on fracking, they can look no further.
Our public debt has been partially obfuscated by outside factors such as economic growth and budget gimmicks. However, as it grows, the options to handle it become fewer. The impending cost of the Social Security and Medicare needs of the Baby Boomers will provide a stark choice between reducing benefits, cutting taxes, or both. Since the Social Security trust fund is estimated to expire in 15 years, all the Democratic proposals to expand expenses will only hasten the day that checks are reduced.
Crushing debt is something that many Americans understand in their personal lives when it comes to delaying plans, paralyzing action, and lowering standards of living. Whether we like it or not, we contributed to the same concept, millions of times over, in Washington. When a credit card bill comes due, an individual could declare bankruptcy. When the government has its debt bill come due, all of us will be on the hook.
Kristin Tate is a libertarian writer and an analyst for Young Americans for Liberty. She is an author whose latest book is "How Do I Tax Thee? A Field Guide to the Great American Rip-Off." Follow her on Twitter @KristinBTate.