Lawson for Congress

Here are the current numbers that shape our reality:Current National Debt: $8.9 trillion ($5.0 trillion held by public, $3.9 trillion by government)

National Debt in 2006: $8.5 trillion ($4.9 trillion held by public, $3.6 trillion by government)

Interest Expense on National Debt in 2006: $406 billion ($222 billion on debt held by public)

Largest departments by expenditure in our federal government (2006):

Department of Defense: $633.9 billion
Health and Human Services: $627.4 billion
Social Security: $593.1 billion
Department of Veterans Affairs: $113.8 billion

Note that since Social Security should be paid out of a completely separate, and sacrosanct, trust fund, it should not compete for tax receipts. Therefore, the interest payment on the national debt (at $406 billion) is effectively the third largest “department” in the federal government!

How does this compare with the size of the economy?
GDP (2006 current dollars): $13.2 trillion

Our debt, which is being used to fund operations, is 67% of our national “income”. It’s one thing to borrow money to invest in an asset you expect to appreciate in value, or to generate income. That’s called leverage. But consistently borrowing money just because you can’t balance your operating budget — well, that’s called stupidity.

Where do we get the money that we spend (2006)?
Individual Income Taxes: $1.0 trillion ($1.8 trillion including earmarked deductions)
Corporate Income Taxes: $350 billion
Additional Deficit: $247.7 billion

Tax payments by AGI and percentages (2004):
Top 1%, with AGI >= 328k, pay 37% of taxes
Top 5%, with AGI >= 137k, pay 57% of taxes
Top 10%, with AGI >= 100k, pay 68% of taxes

Sources:
http://www.treasurydirect.gov/NP/BPDLogin?application=np
http://fms.treas.gov/fr/index.html
http://www.ntu.org/main/page.php?PageID=6
http://www.bea.gov/national/index.htm#gdp

We can’t begin to address our fiscal crisis unless we question the role of government. That questioning can’t stop at the federal level, although it needs to start there. Since states can’t create money, they have a built-in limit on their ability to grow. But the federal government, with its unique ability to monetize its debt, has shown itself unable to exercise even the smallest shred of self-restraint.

But hey — maybe I shouldn’t be so concerned with these figures. In fact, since we’re acting as if the national debt doesn’t really matter, why don’t we just do away with the income tax entirely and fund our government ENTIRELY with borrowing? What does it matter if we add to the deficit by $250 billion with tax receipts of $1 trillion, or just borrow $1.25 trillion? That way we can have our cake and eat it too.

On the other hand, there’s someone else who doesn’t see it that way. His name is David Walker, and he’s our Comptroller General in charge of the Government Accountability Office. His recent report, which provides a none-too-sanguine perspective, was written up last week in the Financial Times. I’d encourage anyone who isn’t yet concerned with our government’s profligacy to the point of insanity to read these two articles.

Some have claimed that a Constitutionally-restrained federal government would be more expensive than the “single state” alternative driven by an all-powerful federal government. The typical rationale is that supporting fifty state bureaucracies is more expensive than a single national bureaucracy for any issue or department in question.

I strongly disagree. History has shown that a Constitutionally-limited federal government and state governments operating in the context of the 10th Amendment are vastly more cost-effective. Why am I so sure? Four reasons:

1) We survived the first 140 years as a nation without a federal income tax, and state taxes during that time were far less than the 30-35% (at least) federal tax burden we shoulder today. Historically, the burden has not been “shifted” from states to the federal government — it’s just been increased at every level to the point of threatening our economic viability as a nation.

2) Every time the federal government picks up a new area to regulate or fund, it typically steps on the toes of, or competes with, existing state regulations and agencies. Education, transportation, and energy are perfect examples. But if a state hasn’t seen fit to regulate something, why is relying on a newly-omniscient Guardian of the Public Good in Washington a good thing? And when the Feds *do* show up at the party, it’s not like the state bureaucrats just give up and retire. You still have Departments of Education and Departments of Transportation in every state. Can you show me an example of a federal department, that if eliminated, would require creation of new bureaucracies at the state level? Other than the Department of Defense, I’ve come up empty.

3) The federal government’s other favorite trick is the “unfunded mandate”. That involves passing a federal law that requires the states do something, but doesn’t provide funding to do it. The RealID act is a perfect example — how are the states going to fund this national ID card? Well, that’s your state’s problem. Maybe they can just reduce Medicaid benefits so we can all afford to smile and show our papers. Oh and did I mention Medicaid? The federal government has decreed that your state has to provide that to illegal aliens, as well. There’s irony in there somewhere, if only I could find it.

4) Most importantly, the federal government ALONE has the power to run an unbalanced budget funded by borrowing and printing new dollars in a fiat currency. Sure, state and local governments can float bonds for capital expenditures like schools and roads, but they can’t just “borrow” money like the feds through the Federal Reserve System to finance an operating deficit. Like I said, try that technique yourself at home. You won’t like the results!

This entry was posted on Sunday, August 26th, 2007 at 5:46 pm and is filed under debt, economic freedom, educational freedom, monetary reform. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.