Don't Raise Uncle Sam's Credit Limit

Once again, the United States government is rapidly approaching a fiscal debt ceiling. After March 16, 2017, Uncle Sam will not be legally allowed to borrow any more money to cover its budget deficits, unless Congress votes to raise the debt limit, once again, like it has every time in the past.

Uncle Sam’s debt has been growing at a frightening rate over the last several decades. It took almost two hundred years, from around 1790, when the government of the United States was established, to 1980 for the federal government to accumulate $1 trillion of debt through deficit spending.

In the twenty-year period, 1980 to 2000, that national debt grew to $5 trillion. Then during the eight years of George W. Bush’s Republican Administration from 2001 to 2009, the debt doubled to around $10 trillion. And over the eight years of Barack Obama’s Democratic Administration, the national debt doubled, once more, to just short of $20 trillion.

The Taxpayer Cost of the National Debt

United States Gross Domestic Product – the market value of all final goods and services produced during a year –is estimated to have been about $18.6 trillion in 2016. That means if the American people were to devote last year’s entire national income to paying off the federal government’s accumulated debt, it would still fall short by nearly $1.5 trillion dollars!

With an estimated population of around 325 million people at the end of 2016, the per capita financial burden of the national debt comes to around $61,550 per person in the United States. About half of the U.S. population submits and pays some amount of tax to the federal government. This means that the per capita burden of the national debt for those submitting and paying federal taxes is almost $123,500 per taxpayer.

Of course, in reality, many pay no or little net taxes to the federal government, while others pay far more. But this number at least gives a sense of what it would cost each of us, on average, if we were to try to pay off the national debt in one lump payment.

The Debt Limit and Short-Term Fiscal Tricks

The Congressional Budget Office (CBO) recently issued a report on “Federal Debt and the Statutory Limit, March 2017.” The report reminds us that Congress passed the Bipartisan Budget Act of 2015 that temporarily lifted any limit on how much the federal government could borrow and add to the national debt until March 15, 2017, which is, now, just around the corner.

After that date, whatever has been added to the national debt up to that time becomes the new legal debt ceiling, which will be at or very close to that $20 trillion mark. Anything beyond this amount will require Congressional approval with a new, higher ceiling on government borrowing.

The CBO also points out that, as with earlier administrations that have reached that lawful limit without an immediate Congressional approval of a higher number, the Secretary of the Treasury has a variety of short-run smoke-and-mirror tricks to keep spending by playing games with several internal government financial accounts. In other words, the Treasury Department can “juggle the books,” adding to the net debt through ledger book subterfuge and then make good on what has been manipulated out of the higher debt ceiling passed by Congress.

The Congressional Budget Office suggests that the available leeway to get away with this could allow the federal government to keep spending beyond taxes collected for several months before a real hard limit would be reached, after which there would no more room for such financial games unless the Congress increases the debt limit.

Uncle Sam’s Future Red Ink Has No End

Government and its spending are out of control. In its January 2017 long-run “Budget and Economic Outlook” report covering the next ten years, the CBO estimates that continuing, and indeed, rising annual budget deficits between 2017 and 2027 will likely bring the federal government’s overall debt to at least a total of $30 trillion, or a 50 percent increase in the national debt in ten years or less. Those $1 trillion-a-year deficits experienced in the early years of Obama’s presidency, the CBO projects, will be back starting in 2023 and thereafter.

This, of course, presumes that the estimates for government revenues and expenditures made by the CBO for the next decade turn out to be correct. But if anything has a relatively high degree of certainty, it is that government ends up spending more than originally projected and planned. So the deficits and debt estimates can easily turn out to be on the low side by the time we reach 2027.

Uncle Sam’s budgetary excesses are being fed, more than by anything else, by the “entitlement” programs, especially Social Security and Medicare spending. According to the Office of Management and Budget, in the current federal budget for fiscal year 2017 (that runs from October 1, 2016 to September 30, 2017), Social Security and related programs will consume 36 percent of federal expenditures; Medicare and other health programs will eat up an additional 28 percent; and net interest on the federal debt will absorb 7 percent.

These two general redistributive categories make up over two-thirds of all federal government spending. And when net interest on the national debt is added, this comes to over 70 percent of all federal expenditures. The Social Security Administration spending in the current fiscal year will be around $908 billion, while expenditures by the Department of Health and Human Resources will come in at over $1 trillion.

Classical liberals and libertarians may well consider that the United States government spends too much on defense and its military interventions in various parts of the world, spending that many friends of freedom may view as unnecessary and misplaced, but the Defense Department’s planned $516 billion spending in the current fiscal year, nonetheless, makes up only approximately 15 percent of overall federal budget. A lot of wasted money, no doubt, but right now it is not defense spending, per se, that is driving this growth in the size and scope of government.

Yet, the new Trump Administration, like virtually all other administrations before it, has insisted that Social Security and Medicare and related expenditures remain sacrosanct – untouchable by any budget cutter’s pen. Plus, the Republican majority leadership in Congress, already unwilling to repeal ObamaCare without putting in its place the GOP’s “moderate-conservative” variation on the national health insurance theme, clearly has no intention of challenging two of the core programs of the American welfare state. (See my article, “For Healthcare the Best Government Plan is No Plan.”)

If the President and the Treasury keep asking for increases in the national debt limit, and if Congress, in turn, after handwringing and gnashing of teeth about fiscal irresponsibility, continues to raise that debt limit there will clearly be no end to deficit spending.

A Frozen Debt Limit Means a Balanced Budget

But there is a simple and straightforward way to bring the fiscal hemorrhaging to an end. Don’t raise the debt limit. In one legislative act, in this case, a non-action, the federal government will have to operate within the confines of a balanced budget.

With no increase in the debt limit, the Federal government will be legally restrained to spend only what it takes in in taxes and other revenue sources. This, in itself, makes the case for not increasing the debt limit very appealing.

Of course, this would mean that the government could not cover a part of those expenditures that it has contracted or legislatively committed itself to in previous years. This is what normally generates most of the outcry about needing to raise the debt limit.

The Congressional Budget Office estimates that in the federal government’s fiscal year, 2017, Uncle Sam will spend a total of nearly $3.96 trillion and collect in taxes about $3.4 trillion, leaving a budget deficit in the neighborhood of $560 billion.

To stay within the current statutory budget limit during this fiscal year, all that the federal government would need to do is to cut spending across the board by about 14 percent. Given the mismanagement and waste that virtually everyone admits goes in every bureau, agency, and department run by the federal government, a 14 percent “trimming” does not threaten (some might say, unfortunately) any of that “cutting to the bone” that the budget busters among both Democrats and Republicans constantly warn about.

Either You Spend Your Money or Government Does

But we should also realize that if the government is prevented from any more borrowing, it would become crystal clear that the government does not possess an unlimited financial horn-of-plenty from which to satisfy every conceivable ideological and special interest demand for which an appeal is made to Washington.

If any of these demands for government spending above what can be covered by current government revenues were to be satisfied, it would then compel politicians and bureaucrats to tell the American public that which they avoid admitting like the plague: there is an inescapable trade-off between the people spending their own money and government taxing it away and spending it instead.

In other words, no longer could there be the illusion of a “free lunch,” in which the federal government makes it seem that something can be had for nothing, or at less than its real full cost. Every additional dollar of higher government spending above what is currently collected in taxes would require one less dollar left in the hands of private citizens who had produced and earned it because that extra dollar of government spending would require an extra dollar of taxes taken out of the taxpayer’s pocket. (See my article, “Why Government Deficits and Debt Do Matter.”)

This would require the citizens and the taxpayers of the United States to ask themselves exactly what it is they want the government to spend money on, and for which they will have to make the hard choice to have less money in their own pockets to pay for it.

In other words, the American people would be reminded that there is a thing called “scarcity,” that the resources and financial means to obtain all that we would like to have is limited and insufficient relative to our wants and demands for things.

Balancing the Budget Means Accepting Trade-Offs

We each make such trade-offs and hard choices in our own personal, daily lives. Out of our take-home pay we decide whether we are willing to sacrifice going on that desirable but more expensive vacation so to put more money in our savings account to have the means to repair the roof on our home or to have more money put aside to pay for our child’s education when they are ready to go off to college.

Or if we put that new flat-screen television on our credit card, we know it may mean planning to go out to dinner less frequently for a while, since our monthly payment will be higher while we are paying it off, including more interest on that borrowed money.

A balanced budget for the government means having to prioritize what it can afford to spend, and on what – just like you and me.

Would the burden of cuts have to fall on “discretionary” government spending – including defense – if “entitlements” remain off the table? Yes, but that in itself would impose hard thinking on the American people as to whether they are willing to face the fact that it is the entitlement programs like Social Security, Medicare, and whatever may replace ObamaCare that are sucking up the greatest amount of what the government takes in as taxes now and will be even more so in the future.

Deciding on the Role of Government in Society

The American citizenry would be forced to look at themselves in the mirror, and ask whether they are willing to pay the higher taxes to cover these rising entitlement costs, or whether they are finally going to accept the fact that real entitlement reform must be undertaken – including ending government responsibility and involvement in people’s retirement and health care costs altogether through full privatization and real free market alternatives. (See my article, “There is No Social Security Santa Claus,” on the coming fall of Social Security under current legislation, and a market-based policy for its full repeal.)

These are tough choices, given the increasingly embedded psychology of paternalistic government dependency, and the politics of trying to live at other people’s tax expense for things we want the government to do for us.

But either we face this reality and reevaluate the role of government in society or we go on “busting the budget” with continuing deficit spending, growing the national debt, and inviting potential financial ruin for ourselves and our posterity.

The inescapable choice is ours.

Richard M. Ebeling

Richard M. Ebeling
Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.
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A New, Easy Way to Track Your Representative on Spending

Americans who are concerned about unsustainable and reckless government spending have faced a fundamental problem: It’s hard to track what their representatives are doing to either curb, or increase, spending.
But thanks to a new tracking tool, those days may be coming to a close.
The Coalition to Reduce Spending has just released a tool called the Spending Tracker. This will allow taxpayers to see how their money is being spent, enabling them to hold their representatives accountable for overspending.
It has long been difficult to present spending bills and their budgetary impacts to the public in a clear and concise manner that is accessible to all. These data are often presented as a complicated mess of numbers and calculations, and it takes constant effort to track and assess the impact of each spending bill that comes through Congress.
Fortunately, the new Spending Tracker turns what would normally be a full-time job of studying congressional activity into a user-friendly tool for engaged citizens.
The Spending Tracker encourages constituents to ask the question, “What’s my congressman’s number?” This number refers to each representative’s cumulative spending score, revealing who in Congress is spending big and who is cutting costs.
The tool tracks not only past and current spending, but also future spending based on Congressional Budget Office scores. These CBO scores reflect estimates of how each bill will affect the federal budget.
The CBO’s 10-year fiscal outlook for the federal budget should be troubling to even the most indifferent of Americans. Overspending has driven the national debt to an astounding $20 trillion.
Interest payments on our debt alone will cost taxpayers $768 billion by the end of the decade—$30 billion more than we will spend on national defense that year.
As the Coalition to Reduce Spending’s president, Jonathan Bydlak, said in a recent interview, “A lot of people talk a good game”—referring to members of Congress on both sides of the aisle who make empty promises to curb federal spending.
This tracking tool will help the public observe spending over time to determine whether their local members of Congress actually practice what they preach.
While some members devote great effort to limiting excessive spending—such as Rep. Justin Amash, R-Mich. (who is Spending Tracker’s “top saver” for the 114th Congress)—many members of Congress score poorly.
When just glancing at the rankings, we see that many conservatives, moderates, and liberals alike have a spending problem. This is despite wildly different political ideologies on the role of government.
As Congress votes on various spending bills and other fiscal changes throughout the year, Spending Tracker will be there to help the public stay up to date and informed.

Commentary by Jonathan Iwaskiw and Romina Boccia. Originally published at The Daily Signal.

New Analysis: Obamacare Regulations Drove Up Premium Costs by Up to 68%

Until recently, the House was scheduled to vote on the American Health Care Act, the GOP leadership’s proposal to repeal and replace parts of Obamacare. That vote has been called off.

While the American Health Care Act would have repealed some Obamacare regulations, the bill does not go far enough.

Obamacare caused premiums to rise for various reasons, chief among them being the vast new regulations the law imposed on insurance markets. A new analysis from Milliman backs this up. The study provided estimates of the average impact that various Obamacare regulations had on premiums. These estimates are reflected in the chart below.

Most of these averages vary state by state, depending on demographic differences.

Take the example of Oregon. While reinsurance may have driven up rates nationally, in Oregon they initially reduced premium rates by 8 percent, followed by a decreasing impact from then on, lowering rates by 2 percent.

Changes in morbidity (or the sickness of the population) due to newly uninsured by itself caused 4 percent increases in premiums nationally, but in Ohio it raised premiums by 35-40 percent.

Age is also a factor in premium prices, and Obamacare disrupted the natural order by dictating the age banding, which disproportionately harmed young people. (Age banding here refers to how much the most expensive plans can be in comparison to the cheapest.)

Before Obamacare, the national rate of age banding was 1-to-5. In other words, the most expensive plan was five times more costly than the cheapest plan, with expense increasing with age.

Obamacare mandated that the rate be set at 1-to-3, so that the most expensive plan could be no more than three times as expensive. While elderly people’s premiums might have seen fewer increases—which is both due to banding and the fact that Obamacare is close to a death spiral—young people have suffered.

Overall, young people can expect to have rate increases between 58.9 percent and 91.8 percent using national averages. However, not every state had a 1-to-5 age band.

In places like Ohio, the effects are far worse—it had a 1-to-6 age band. Even accounting for the differences in its population from the national average, young people in Ohio can still expect to pay an average of 7.7 percent more on top of other increases.

In addition to this “youth tax,” mandates like the “essential health benefits” and actuarial requirements further punish all Americans with benefits that they don’t need, at prices they can’t afford. While in places like Maryland these mandates might only contribute 8 to 10 percent to premium increases, nationally they raise premiums by an average of 16.5 percent, up to 32 percent.

Overall, accounting for gender, age, and the relative proportions of all those groups, Americans are paying 44.5 to 68 percent more in premiums owing just to Title I regulations. 

That number is even higher when factoring all the other adverse effects of Obamacare.
Obamacare’s Title I regulations bid up the price of premiums drastically for many Americans. While the current House bill begins to repeal Obamacare, it does not go far enough, as many of the most damaging regulations are left in place.

Alleviating this pain should be strongly considered at every step of the process.

Note: This piece was updated in light of current events.

Report by The Daily Signal's Dan Gonshorowski. Originally published at The Daily Signal.

Why Wisconsin’s Irrational Ban on Outside Butter Needs to Go

Two inmates arrive at a Wisconsin jail. One asks the other, “What are you in for?”

“Possession with intent to sell heroin. You?”

The first replies, “That’s it? I’m here for possession with intent to sell butter.”

True enough, this conversation didn’t happen. But it might as well have. Today in Wisconsin, a crony regulatory scheme is protecting local industry from out-of-state competition by threatening retailers with criminal penalties if they sell butter that has not passed a bureaucratic taste test.

Now, Wisconsinites are fighting back with a lawsuit aimed at bringing consumer choice back into their stores.

The regulatory law (Wis. Stat. Ann. § 97.176) dates back to 1953 and makes it “unlawful to sell, offer or expose for sale, or have in possession with intent to sell, any butter at retail unless it has been graded” in Wisconsin or by the U.S. Department of Agriculture.

It requires all butter sold in the state to receive and prominently featured U.S. or Wisconsin quality grade on the package, and strictly prohibits the sale of butter that is ungraded or graded outside of the U.S.

Wisconsin officials boast of a particularly rigorous grading process that evaluates butter based on 32 individual points of quality.

State law (Wis. Stat. Ann. § 97.72(1)) provides that first-time violators are subject to a fine between $100 and $1,000 and up to six months in jail. And should a local grocer dare to sell unlabeled butter a second time, repeat offenders may receive a fine of up to $5,000 and one year in the county lockup.

Kerrygold Pure Irish Butter is a popular, grass-fed alternative to butter produced by the grain-fed cows in Wisconsin. It is the top imported and third most purchased brand of butter in America.

Last year, over $71 million worth of Kerrygold butter was sold in the United States without a single reported health problem.

But it is legally banned for sale in Wisconsin because it is graded in its home country of Ireland, but not in the U.S.

Nevertheless, Kerrygold and other imported butters managed to openly sell in Wisconsin for decades as the Wisconsin Department of Agriculture, Trade and Consumer Protection was derelict in its duty to enforce the butter ban.

Only recently did state officials decide to dust off an old Wisconsin statutes book, warning local distributors that they are prepared to revive enforcement of the obscure state dairy law.

This threat was sufficient to coerce grocery stores into pulling all noncomplying butter products from their shelves.

Admittedly, the Wisconsin Department of Agriculture is not combing the dairy aisle at each supermarket chain to scrutinize its butter selection. It gave retailers fair warning before bringing any enforcement actions. Nevertheless, the threat worked.

While some might think that the removal of select, imported butter brands would go unnoticed, the lack of Kerrygold butter in particular caught the eye and ire of some consumers.

One of those consumers was Jean Smith of Waukesha, Wisconsin, who was up in arms when she noticed that Kerrygold was no longer available in her area. Smith now packs a suitcase full of Kerrygold for personal consumption each time she returns from out-of-state trips.

Transporting butter from out of state is perfectly legal for her to do. The ban only pertains to the sale—or possession with intent to sell—of Kerrygold and similarly situated butter products.

But understandably, Smith hopes she won’t have to bring Kerrygold from out of state much longer.

Conservative lawyers at the Wisconsin Institute for Law & Liberty recently filed a lawsuit against the state on behalf of Smith, several other Kerrygold loyalists, and a specialty food store. They claim that the state butter ban violates the Due Process, Equal Protection, and Free Speech clauses of the Wisconsin Constitution.

According to the complaint, the butter law places an “arbitrary and irrational” burden on the free market and limits competition for local producers “for no reason other than a government bureaucrat has not sampled it and expressed his or her opinion as to its quality.”

The state does have an interest in protecting residents from the ills of contaminated food products. But does the nanny state have a legitimate interest in regulating a trustworthy product out of the market by threatening morally innocent store owners with potential criminal liability?

The complaint alleges that Wisconsin is the only state in America to impose such a burdensome requirement on business owners’ butter selections. Meanwhile, Kerrygold and similar products that comply with all other U.S. food safety standards remain available in the rest of country.

The state must now decide whether to use its limited resources to defend arbitrary and protectionist butter standards. Even if it succeeds, the state must then explain to citizens why their favorite butters are banned and why grocers trying to make an honest living ought to be treated like drug dealers.

That path does nothing to advance the welfare of Wisconsinites. A better path forward: Protect free markets, and protect consumer choice in butter.

Commentary by David Rosenthal. Originally published at The Daily Signal.