Fiscal and economic expert Romina Boccia considered three big questions during her recent lecture at Presbyterian College. She asked, “Does the nation’s fiscal situation look good or bad? What does it mean for you? What are you going to do about it?”
Boccia’s talk, “The National Debt and Your Financial Future,” was this year’s installment in the annual BB&T Lecture Series in Edmunds Hall on the PC campus. Boccia is the director of the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation.
A Talk about Your Money
Boccia assured those in attendance that her topic covered their money, not the government’s money, as some might think.
In 2020, the nation’s level of debt is 80% of the GDP, a measure of the size of the national economy, according to Boccia. Economists have found that a level of debt from 80 to 100% of GDP drags down the country’s economic growth as people become uneasy about higher future taxes.
“When we could have been growing at three percent, we were only growing at two percent as the national debt more than doubled since the great recession,” Boccia said. “As the debt continues to grow, our economy will grow more slowly.”
Boccia says the national debt may not seem like a problem because of the low interest rates. However, the debt will ultimately cause higher taxes in the future, which we should be concerned about, according to Boccia.
“As higher taxes fall on consumers, say through a new national sales tax or a new carbon tax, which are some of the taxes being discussed in Washington today, that’s going to impact consumers’ ability to buy the goods and services that you’re producing, that you’re investing in today,” Boccia said.
Three Ways to Calculate the National Debt
Boccia described three different ways to talk about the national debt. First, our gross national debt includes all obligations, including intragovernmental debt to social security. Gross national debt sums to $23 trillion.
What isn’t included in the first way to look at the national debt is unfunded obligations to Medicare and social security. If you include these numbers, we owe $56 trillion in net present value terms.
One other way to calculate the national debt is to include other planned government spending versus the taxes that are expected to be collected. In this case, the national debt totals $230 trillion.
Why do we have this much debt?
“Well, it’s because Uncle Sam is acting more like Santa Claus,” Boccia says.
“Every single day, hordes of special interest groups, very nice people with very legitimate interests, are descending on Washington, knocking on their lawmakers’ doors, and asking for funding for all sorts of things. Many things that should be handled by their state or local governments or that the private sector is perfectly equipped to deal with.”
“They go to politicians because they need voters, so they won’t say no,” Boccia added.
Boccia discussed government spending in her talk too:
“There’s this idea, ‘Let’s have the government pay for it,’” she said. “But, where does the government get its money?”
“In the case of government borrowing, nobody seems to care. Because we don’t think about the future, there will be higher taxes for today’s teenagers, students and babies not born yet.”
More than half of the federal budget goes toward social security and healthcare programs, according to Boccia.
“And the interest from those debts are taken away from another group or benefit, and with that, spending increases,” Boccia said. “Although people think tax cuts made the deficit and debt worse, it actually increased the tax revenue.
“Tax revenue grew by four percent, and our economy is strong. Our economy is growing. But, spending grew at twice that rate.”
Spending from 2018 to 2019 grew by eight percent, according to Boccia.
“What we actually have is higher tax revenues chasing ever higher spending,” she said. “It’s a spending problem, not a tax revenue problem.”
Boccia believes that the only way to control the debt is to control spending.
“If we could just agree to cap the growth in spending below the growth in our economy, we would have a balanced budget in no time,” she said. “We don’t even need to make spending cuts. We just need to reduce the growth in spending because it’s growing so rapidly.”
Models to Follow
Boccia also thinks fiscal restraint can help with the national debt. She suggested following countries like Switzerland, Germany and Sweden and adopting constitutional amendments to balance the budget over a business cycle, where spending and borrowing is limited.
“I think the most powerful fiscal restraint there is would be a constitutional balanced budget amendment backed up by a statutory spending cap that covers all spending and that forces lawmakers to prioritize,” she said.