On October 4, 2022, the U.S. hit another debt ceiling of $31 trillion. The U.S. has never defaulted on its debt. However, we run a possibility of this if Congress does not get its act together and agree on new legislation that aims to reduce the national debt.
A default on debt occurs when a borrower fails to repay funds to the investors. In this scenario, if the U.S. defaulted on its debt, it simply means the U.S. cannot pay its own bill due to the country’s spending habits; therefore, it defaulted on the national debt.
The default will affect the global financial system and could impact economies around the world. If the U.S. is unable to pay interest on the $31 trillion that they owe to investors such as Japan, China and the United Kingdom. Americans will face a recession, high unemployment and a stock/bond market decline.
According to surveys of economists from the London School of Economics, many believe that a risk of default will inject risk to both domestic and foreign investors, thus decreasing holdings of U.S. debt and increasing the cost of borrowing.
Historically, the debt ceiling (the limit of debt the U.S. Treasury may incur) has been raised each time the debt reached its limits. However, instead of focusing on reducing the outstanding debt, Congress continues to spend recklessly.
Reckless government spending refers to the irresponsible use of public funds by the government without proper consideration of long-term consequences and without sufficient regard for the financial well-being of the country. If the government were to propose legislation that requires government spending, I believe the legislation has to have an estimated amount of revenue generated by the proposed bill.
To avoid an economic collapse like the great recession in 2008, Congress simply must pass legislation increasing the debt ceiling again. If Congress raises the debt ceiling, there must be a guideline of what Congress can spend money on.
To put it simply, if Congress wants to authorize spending on domestic issues, such as homelessness, infrastructure, health care, veteran benefits, immigration and abortion; this should be Congress’s main objective. This would encourage debate between the Democrats and Republicans on whether the spending should be allocated to those specific issues if it generates positive cash flow to the government’s balance sheet.
But Congress should not authorize spending on international issues, like aiding wars and providing weapons and tanks to encourage violence, war and death. I firmly believe that if the U.S. is $31 trillion in debt, we should at least fund operations in the U.S. to build and upgrade our infrastructure and domestic issues.
According to CNBC, since 9/11, the U.S. has spent $6.4 trillion to fund wars in the Middle East and Asia. That total is more than the entire federal government spending in the 2019 fiscal year. The U.S. spends $4.4 trillion essentially on itself while spending $6.4 trillion on aiding wars overseas.
Now, how else can we reduce the national debt? Another solution Congress should discuss is proposing an increase in taxes on Americans. An increase in tax also known as a fiscal contractionary policy will affect consumer behavior to reduce their spending and increase the government’s revenue. However, this policy is largely unpopular among Americans.
Therefore, Rep. Earl Carter (R-GA) has put forth an innovative bill, known as the FairTax Act of 2023 (H.R.25), which could potentially solve the problem of the national debt. This legislation aims to eliminate all forms of income tax, payroll tax, estate tax, and gift tax for all Americans, and as a result, there will be no allocation of funds to the IRS, resulting in cost savings. The bill replaces these taxes with a national sales tax of 23%.
Many critics say that this bill will affect low-income Americans, however, in the bill, U.S. residents will receive tax rebates based on family size and poverty guidelines. Essentially, low-income families will pay low taxes on goods and services, while also keeping 100% of their net earnings.
I find this legislation very attractive for all Americans, especially the government largely benefiting from this potential surplus.
This story was written by Charlielu Hua. He is not a paid staff member for the Marquette Wire. He can be reached at [email protected].
