We Have a Too-Much-Federal-Revenue Problem, Not a Looming ‘Debt Crisis’

“American public debt is at economically damaging levels and growing at an unsustainable rate. Congress should stabilize federal debt to reduce the possibility of a fiscal crisis.” Those are the words of Romina Boccia, the Cato Institute’s director of Budget and Entitlement Policy, but they really could be the words of any budgetary expert.

Figure that a variation of what Boccia contends has been said for decades. It’s what they always say. A “debt crisis” is always in the future, and the experts always have solutions that will avert what they’re confident is on the way. Well-meaning and wise as Boccia clearly is, it seems what saps her analysis and the Rose Bowl full of budgetary types who said the same before her is that they’re mistaking the problem.

The simple truth is that we don’t have a debt problem. Evidence supporting the previous assertion is the massive amount of debt that the U.S. Treasury can presently claim. If there were a debt problem, we would have $190 billion in total national debt as opposed to over $30 trillion. Actually, the previous number is how much Russia owes creditors. Russia’s debt isn’t microscopic relative to the U.S.’s because Vladimir Putin is secretly a classical thinker who understands that government spending is a tax, but because investors are very pessimistic about Russia’s economic future. Since they are, they won’t lend to a country that can lay claim to an economy smaller than Italy’s.

On the other hand, the U.S. has massive amounts of debt in nominal terms precisely because investors think its economic future is more than grand. And because they feel that way, they line up to buy the debt. It’s rather apparent from $30 trillion+ in total debt (and as Boccia would likely add, tens of trillions more in future liabilities) that the markets feel a number that reads as presently enormous will eventually not be so enormous relative to future revenues flowing into Treasury. Which is the point.

We don’t have a debt problem; rather we have a problem of too much revenue now, and a market expectation of way-too-much revenue in the future. Markets are forward looking, and the trillions in debt are a signal that debt problems don’t loom.

Still, it’s worth stressing that the spending is a problem. As referenced before in the brief pivot to Russia and Putin, government spending is a tax. Better yet, it’s the worst tax of all. Supply siders focus their happy talk on tax rates as a production deterrent, and they’re right that income taxes are a penalty placed on work. Yours truly has written as much in numerous books.

At the same time, it’s not unreasonable to speculate that individuals with last names like Bezos, Musk and Zuckerberg would be enterprising at all sorts of rates of taxation. One guesses they “tap dance to work” like another billionaire by the name of Warren Buffett. All of which speaks to the horrors of government spending. While Bezos et al would surely work at all sorts of tax rates, they can’t innovate without capital.

Government spending by its very name shrinks the amount of capital available to commercial visionaries. Despite this truth, Boccia’s focus is on shrinking debt as though that’s the crisis. See above. It’s not. Instead, it would help if conservatives and libertarians recognized that to focus on how Congress attains dollars to redistribute is to make a distinction without a difference. What matters is that whether through taxation or borrowing, the extraction of precious resources from the real economy is the true, and economy sapping tax.

The above reality Boccia seems to gloss over. Which is a mistake. Really, what would she prefer: a balanced budget of $6.5 trillion or an annual deficit of $250 billion on $1 trillion in spending? The answer seems pretty obvious, at which point the goal should be to reduce incoming revenues as much as possible. The extraction of wealth is the crisis (something supply-siders have never understood) simply because it enables a growing governmental burden in concert with growing amounts of debt that investors are all-too-willing to buy given an expectation of wealth extraction in ever larger amounts in the future.

It’s something for Boccia and other libertarians and conservatives to think about now. We have a revenue problem as opposed to debt problem, and the evidence is the debt itself. After which, the true crisis is one of an unseen lack of economic progress born of government spending itself, not how the wealth is extracted so that Congress can spend.