Last year, almost 10 percent of every tax dollar was used to pay interest on the federal debt. For the average family, that’s about $1,600 of your tax bill. Deficits in the past five years have increased the debt by more than a trillion dollars-and added to the interest on your tax bill.
Sometimes, borrowing is justified: to cover the costs of a national emergency or to bolster the economy during a recession. However, future deficits are not the result of special needs – such as the 2001 recession, the wars in Iraq and Afghanistan, and hurricanes Katrina and Rita. They are the result of planning to spend more for government services than we are will to pay for.
Ongoing deficits are a serious threat to the economy. We are living beyond our means and relying on the willingness of foreign nations to provide us financial capital. These countries have an interest in encouraging our spendthrift habits, but they could easily stop lending so much money to the United States. Interest rates would then soar, the value of the dollar would fall, and a recession would likely follow. For a family with a typical 30-year mortgage on a $225,000 house, an increase of just two percentage points in the interest rate would add $2,500 to their mortgage payment.
While a sharp withdrawal of foreign capital is unlikely, the possibility makes us unnecessarily vulnerable to what could be a full-scale financial crisis. Due to our fiscal irresponsibility we are losing control of our economic destiny and may be looking at a future where we cannot count on a standard of living that continually improves.
Sustained deficits discourage the investment we need for long-term growth and constrain our ability to respond effectively to emergencies or to make public investments that would strengthen the nation.
The inability of elected officials to curtail deficits in relatively good times shows lack of leadership at every level. No one likes higher taxes or reduced spending, but these are the only ways to bring the government’s budget back into balance. We can pay for government now or we can pay for it later, but we cannot avoid paying for it indefinitely. Choosing to spend now and pay later asks our children and grandchildren to bear the cost of what we have consumed. Burdening future generations with higher interest costs or lower incomes as the result of our fiscal irresponsibility is simply immoral.
Skeptical politicians argue that current deficits are smaller relative to the size of the economy than at some times in the past. While true, this fact ignores the fiscal tsunami that is just over the horizon. Spending will inevitably mount over the next few years as the baby boom generation begins collecting the benefits promised under Social Security and Medicare and the costs of medical care continue to soar. Without major changes deficits will grow to unsustainable levels over coming years. We cannot say, “Don’t worry, the future will be better.” The time for fiscal responsibility is now.