In December, Congress adopted one of the most important tax reform laws in our nation’s history. It is producing higher wages, better job opportunities and greater economic expansion than we’ve seen in a decade. According to the Congressional Budget Office, revenues for the first seven months of the fiscal year have increased because of economic growth. The tax cuts are indeed paying for themselves — and then some.
Yet the deficit continues to grow. Why? Because Congress continues to increase spending.
Three numbers — 26, 29 and 46 — tell the whole story. Over the last 10 years, population and inflation have increased a combined 26 percent. Our revenues have more than kept pace, increasing 29 percent. The problem is that third number. Our spending has grown 46 percent.
Some say we should increase taxes to reduce our debt. But taxes and debt are the same thing: A debt is simply a future tax. Once we’ve spent a dollar, we’ve already decided to tax it, either now or in the future. It’s the spending that’s the problem.
The U.S. Constitution gives the power of the purse to the House. Not a single dollar can be spent by the government unless the House says so. Two months ago, having cut taxes, the House approved a 20 percent increase in discretionary spending. The tax reform is producing enough new revenue to offset the cuts themselves, but not the increases in spending.
We are now approaching a trillion-dollar annual deficit, with $21 trillion of total debt. This not only crowds out capital that would otherwise be used for economic expansion, it also produces staggering interest costs which today amount to $475 billion a year. By comparison, our total defense spending is roughly $675 billion.
Every 1 percent increase in interest rates will add roughly $200 billion to our annual interest costs. If capital markets believe we have no plan and no inclination to control our spending, they could soon begin demanding higher rates to compensate their added risk, requiring still more borrowing. That’s a debt spiral. It can quickly lead to a sovereign debt crisis, where the government loses access to credit markets.
Puerto Rico has already suffered such a fate. Its pension system is imploding, basic services are faltering, the economy is collapsing, its population is fleeing and its government has been helpless to respond to last year’s hurricanes. A government’s credit is its lifeline in an emergency.
The instrument required to prevent this from happening to our country is the federal budget. It is supposed to set limits on both discretionary and mandatory spending and to provide a streamlined process to adjust statutes to meet those levels. The deadline for Congress to pass a budget was April 15. Yet the House Budget Committee has yet to act.
Fortunately, the Republican Study Committee — the largest caucus in the Congress — has stepped forward to offer a comprehensive budget for the coming year. The RSC budget is the only credible and comprehensive plan in Congress to turn us back toward fiscal solvency before it is too late, getting us back to balance by 2026.
It combines the fiscal reforms proposed by the members of the RSC over the last several sessions, along with innovations in service delivery proposed by the CBO, the GAO, the administration and by think tanks like Heritage and Mercatus.
It shows, program by program, how we can produce more effective service delivery at much lower cost, rescue Medicare and Social Security from impending collapse, and fully fund our nation’s defense.
It gores every sacred cow in the federal government, and partisans of the status quo will howl in protest. But we are running out of time and running out of options. Those same voices have placed us on a collision course with bankruptcy, and countries that bankrupt themselves aren’t around very long. Every expert who has appeared before the House Budget Committee has agreed that on our current trajectory, it is only a matter of time until a sovereign debt crisis brings down our country. And time is not our friend.
Hemingway once observed that there are two ways to go bankrupt. First, very gradually, and then, quite suddenly. Whether the House acts on the RSC budget or some other version, it must get its spending under control now or risk being remembered as the generation that accomplished with debt what no foreign enemy could with arms.
• Tom McClintock is a Republican U.S. representative from California.