Imagine for a minute that someone with almost $445,000 in credit card debt said to you, “I just don’t make enough money.” You’d think that this person was a fool and caution them to reduce their spending. Unfortunately, this is exactly the argument that Vice President Harris and congressional Democrats want the American people to believe.
On Monday, July 29, 2024, the national debt eclipsed $35 trillion — a figure unimaginable just a generation ago. Pundits who seek to diminish the severity of this measure will point out that, while debt has reached record levels, the debt-to-GDP ratio is lower now than it was during the pandemic and hope that it will fall further despite CBO projections to the contrary.
Looking at debt-to-GDP ratios is dangerously misleading. To see why, we need to understand what this number represents. The debt-to-GDP ratio divides the total national debt ($35 trillion) by GDP ($25.44 trillion). With this, we arrive at our current debt-to-GDP ratio of 1.37. In other words, the current national debt is equivalent to 137 percent of GDP or about 16 months of total U.S. economic activity.
Collectivists will tell you that GDP is a measure of the nation’s total income. While this is true, it is also misleading. GDP is indeed a measure of the total income earned by the people within the U.S. But by referring to it as the “nation’s income,” the implication is that it is, in fact, owned by the nation itself and not the people who earned it.
In making this error, pundits seek to diminish the severity of the national debt. While a 137 percent debt-to-GDP ratio sounds scary enough, it hides the much more alarming truth.
Just like a household, the nation should use what it actually collects in revenue, not the combined totals of what everyone earns. The federal government should not use “GDP” as its implicit income. It should use federal receipts. Looking at this, we can see that federal receipts for 2023 were $4.4 trillion. The current federal debt of $35 trillion therefore represents about eight years’ worth of federal revenues.
Let’s compare this to the American worker. Most recent data reports that the median weekly earnings of full-time workers is equivalent to about $57,150 annually. If American workers ran their budgets the way Congress runs theirs, the median worker would have about $445,000 in credit card debt.
Looking at GDP growth and using it as a justification for continued federal deficits is lunacy. This would be akin to our already-indebted worker saying, “Because my neighbor got a raise, I can open a new credit card.” After all, a neighborhood’s debt-to-GDP falls when neighbors’ incomes rise. It is easy to see the folly in this line of reasoning for individuals. But with Congress, this somehow passes muster?
Give me a break.
By shifting the discussion away from current national debt and toward debt-to-GDP ratios, pundits seek to obfuscate the underlying problem: that Congress cannot keep its fiscal house in order. This should be alarming to all people.
Despite the difficulties in doing so, most Americans manage to balance their own budgets year in and year out. But according to the U.S. Treasury, Congress has only run a surplus five times in the past 50 years. Every other year has been a deficit and by more than enough to totally offset all surpluses. So why can’t Congress get its financial affairs in order?
Financial illiteracy cannot be the culprit, as we rarely hear about lawmakers falling on hard financial times in their private lives. In fact, it is usually quite the opposite, with D.C. lawmakers raking in money hand over fist. There can be only one conclusion: that something about the chambers of Congress renders people who are otherwise perfectly capable of balancing their own household budgets unable or unwilling to do so on a larger scale.
The reality is that fiscal irresponsibility is the name of the game in the nation’s capital. Recent figures put congressional spending at about $12 million per minute, every minute, around the clock. The reason is simple: Washington bureaucrats believe that spending creates jobs. This has the relationship precisely backwards: people work so that they can have money to spend. We do not spend money so that others can have work.
Fiscal responsibility on the part of Congress has never been more important. But we must get away from the collectivist mindset that interprets individuals’ income as “the nation’s income.” What we need is transparency with the American people and effective budgetary oversight.
Recent scholarship evidences that when people become aware of their personal taxes paid and the breakdown of how that money is spent, it “reduces support for higher taxes and spending and increases support for lower taxes and spending.”
While there is budget oversight today, the sheer volume of budget tricks and gimmicks that are regularly used makes oversight farcical at best. For example, whenever a tax or spending bill is proposed, two numbers must be established: the baseline, which is a projection of what will happen if the law is unchanged, and the score, which is the effect the proposed bill will have on the overall budget. Selecting assumptions and methodologies to arrive at these numbers has become a game unto itself, with policymakers selecting those which best make the case they want to make.
We also see policymakers elect to phase programs in over time rather than spend all the money at once. This is because doing so helps to reduce the score of a program, spreading it out over multiple budgets. The effect is the same, but the spending counts differently. Further, by passing legislation this way, current policymakers effectively tie the hands of future policymakers into providing additional funding. This is because repealing a spending program that has not yet borne fruit is nigh impossible.
What we need is budgetary oversight that takes these and other gimmicks into account and eschews the collectivist mentality that focusing on debt-to-GDP ratios represents. Only then can Congress solve its spending problem and alleviate the concerns of ordinary, everyday Americans.
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