So one major credit rating agency has announced it has a bad feeling about the long-term value of U.S. government debt. Whatever could our government—which is to say, we, the U.S. public—have done to warrant that? How about refusing to collect revenue that could pay down existing debt:
Sure, government spending increases debt, and the U.S. government spends money to do lots of things I’d be happy to stop doing. But government does lots of things that any sane person agrees are necessary—paying for police and firefighters, building roads, preventing people from pissing in my drinking water—and even if we cut all those basic services to zero, we still wouldn’t have a balanced budget. (Non-defense discretionary spending for 2010 ≈ $530 billion; 2010 federal budget deficit ≈ $1,294 billion. Everyone can agree that 530 is not larger than 1,294 … right?)
When the government borrows, it borrows against tax revenue that it could, theoretically, collect to pay off the debt. Our collective decisions as U.S. citizens, expressed via elections—with admittedly varying degrees of accuracy and wisdom—have run up historically high national debt while driving the proportion of national income collected as taxes to a historical low. If you were loaning more and more money to a friend who kept working fewer and fewer hours a week, wouldn’t you start to get a bit edgy?
And if all this sounds a bit abstract, here’s a nice concrete number: the increased cost of U.S. debt associated with that credit rating agency’s bad feeling comes to about $322 per U.S. citizen. If I’m not mistaken, that’s a pretty big chunk of the refund I got back when the last round of big tax cuts took effect, ten years ago—and it’s just the start. ◼