As the US hurtles toward a GO – NOGO decision on lifting the Federal Debt Ceiling (FDC), the question on everyone’s mind is: Will the ceiling be lifted? One might argue that this is an incorrect and not the most important question because it bypasses relevant and important questions that precede it.
We do not intend to spill much ink concerning this matter because other commentators have covered many aspects of the topic. Therefore, we will pose seven simple, yet important questions, and then summarize our thoughts about the topic.
• Why does the US (Federal) Government not have a balanced budget requirement, while most state governments have restrictions on budget imbalances?(1) Of course, this does not preclude state governments from incurring debt. However, the electorate is often called upon to approve new debt that states plan to incur.
• Is there any reason the US electorate should not vote on lifting the FDC?
• When did it first become necessary to lift the FDC? Were balanced budgets in vogue at the time?
• To what can we point as primary causes of the US Government continuing deficits and the related borrowing that trigger requirements to lift the FDC?
• Who are the largest beneficiaries when the FDC is lifted and how are some of their monetary benefits invested?
• Who benefits most from a threat of not lifting, or an actual failure to lift, the FDC?
Early founders and leaders of the US Government were strong proponents of keeping the nation’s accounts balanced. It was mainly in times of war and emergencies that they approved actions that left budgets unbalanced. However, after WWI, the Great Depression, WWII, and the nation’s success in incurring large deficits and managing the related borrowing that it became clear that it was possible to run deficits without dramatically effecting public and private sector operations—as long as the economy continued to grow at or above the pace of debt accumulation. The public and private sectors comprehended the tradeoffs that debt implied (particularly “crowding out” effects) and accepted them.
Federal deficits began to arise as ordinary occurrences beginning with the 1960s Vietnam War. Deficits were also rationalized by the need to recover from economic disruptions of the 1970s caused largely by oil embargoes. The 1980s Reagan Presidency initiated a surge in debt accumulation that fueled an arms race, which broke Russia’s back. However, President Clinton balanced the budget during the late 1990s and left the Federal Government with a surplus at the turn of the millennium.
After 9/11 and the brief economic recession that followed immediately, successive Presidential Administrations and US Congresses continued to join with the military industrial complex and other private sector special interests to forge budget deficits, or they confronted economic downturns that precipitated recovery spending, deficits, and expanding debt levels.
Mainly owned by oligarchs and plutocrats, big business leveraged the political economy and convinced presidents and congresses to spend, which increased corporate profits. Military spending and health-related spending are an important part of this scenario today. Big US business “can’t lose with the stuff they use.”
What do they do? Inter alia, they motivate conflicts/wars, they jockey to provide health related care, and execute other business strategies that result in multibillion dollar government contracts to provide goods and services.(2) High-level government bureaucrats get in on the act by supporting this spending. The resulting budget deficits require more borrowing.
Who are US government’s main creditors for domestic publicly held debt? While it is difficult to ascertain precisely who private sector domestic creditors are individually and how much financing they provide, logic tells us that they are the same oligarch and plutocrat investors, their companies, politicians, and high-level government bureaucrats, who invest in US Treasuries that are floated to cover deficits. Every time the FDC is lifted these four groups are among the main beneficiaries.
Also, these four groups are big beneficiaries when there is a threat of a default because yields on US Treasuries rise. What better way to receive a higher, nearly riskless guaranteed return?(3) Of course, a long-term default on US government debt could be disastrous for them. Therefore, we can be somewhat assured that these groups will converge to prevent a long-term default.
At some point, however, borrowing in response to the continuous threat of war and a perceived need to prepare for it, the nation’s rapidly aging population with considerable entitlements in tow, a decision to link economic growth tightly with healthcare, and an inability to raise taxes on the rich (those with the most income and wealth) could lead to a dreaded fiscal disaster.
Black Americans are harmed by all the foregoing. Generally, we are not included in the “group of four” mentioned above. However, we are singled out disproportionately for tax audits to squeeze out of us as much revenue as possible to support the US Government Budget.4 Also, we are harmed by oligarchs and plutocrats, their businesses, and by government politicians and bureaucrats, who seek to expand privatization broadly—including a public educational system that has been an important avenue for some forms of Black American progress.
What Black America, the “middle-class” generally, and the “poor” must comprehend is that a double standard is at work in the nation. Big business has not been loyal to the US having exported millions of jobs and trillions of dollars in income to other parts of the globe so that US corporations could earn larger profits, their CEOs could earn higher compensation, and they could contribute more to and influence the US political process. We all know from President Trump’s “Tax Cuts and Jobs Act” of 2017 that vast amounts of US corporate wealth remained overseas and untaxable for a very long time.5 More recently, in response to Silicon Valley Bank’s recent failure, standard operating procedures were jettisoned so that wealthy investors could be protected. Yet, the middle-class and poor remain loyal to the nation even though we receive the most tax audits and will suffer most when benefits and programs are the first items cut to trim the budget during a fiscal crisis.
You can assess whether the views expressed here are balanced or are skewed toward “the least of these.” Also, it is your choice to ask whether your representatives in Washington, DC have or have not made decisions in the best interest of the nation or in their own best interest. To make these determinations you must ask the correct questions. We believe that some of the correct questions have been posed here. If you find that things are not as they should be, then the most important question may be: Are you empowered to act to create change?
1 The Tax Policy Center provides a 2015 analysis of states’ balanced budget requirements that were in effect at the time; https://www.taxpolicycenter.org/briefing-book/what-are-state-balanced-budget-requirements-and-how-do-they-work#:~:text=Although%20all%20states%20except%20North,the%20legislature%20to%20pass%20one. (Ret. 051223).
2 As an example of these developments, consider our November 2022 analysis brief, “A Clearer View.” https://www.blackeconomics.org/BELit/acv.pdf (Ret. 051223).
3 Recently, government politicians and bureaucrats were pulled up for share trading on insider information, but there has been little-to-no mention of politicians and bureaucrats using insider information to guide their purchases of US Treasuries.
4 Scott Horsley (2023). “Black Americans are Audited 3 to 5 Times as Often as Other Taxpayers.” National Public Radio, May 8th. Black Americans are audited 3 to 5 times as often as other taxpayers : NPR. This report references the following article. Hadi Elzayn et al (2023). “Measuring and Mitigating Racial Disparities in Tax Audits.” Stanford Institute for Economic Policy Research (SIEPR). https://dho.stanford.edu/wp-content/uploads/IRS_Disparities.pdf (Ret. 051223).
5 Consider provisions for tax exemptions on earnings of US corporations’ foreign affiliates in the “Tax Cuts and Jobs Act” of 2017, which was an important achievement of the Trump Administration. https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf (Ret. 051223).