Hello and welcome to the 14th post of Talking Points! The National Debt of the United States is often presented by Republicans, as the amount that the current generation is leaving for future generations to pay. It is this claim which is used to justify cuts to discretionary non defense spending, which includes everything from regulatory agencies, to funding for welfare programs, to public broadcasting. While somewhat accurate, this claim represents a fundamental misunderstanding of both national debt itself and the national debt of the United States. In this post, we will examine the national debt, how the debt is financed and why it is important, the nature of fiscal policy, the budget, the defense budget, and discretionary non defense spending. In doing so, I hope to demonstrate that the proposals made by the Republican party fail to address the key issue of the United States’ fiscal sustainability.

To begin, it is imperative to understand how the national debt operates. If the amount that the federal government of the United States, spends in a set period, exceeds the amount it collects through revenue sources like taxation and tariffs, a deficit for that period occurs. This deficit is then financed by the Treasury through the issue of bonds, wherein the holder of the bond is entitled to the value of the bond when reaching its maturity. For example, if a bond is issued which has a maturity of one year from its issue, and an annual interest rate of 5%, being purchased by the investor for $100.00, whoever holds that bond when it matures will receive $105.00. Despite their low yield compared to other investments, like stocks, such bonds are widely purchased by investors due to their reliability. In fact these bonds are AAA rated, the highest possible rating. However, this process acts as a double-edged sword. As bonds mature, they need to be repaid, likely with funds generated through the issue of more bonds.

The point is that for as long as investors are willing to continue purchasing such bonds, investors benefit from stable investments and the government benefits from the ability to fund programs without accompanying tax increases. Such investors are willing to purchase these bonds on the basis that they will be repaid. Unfortunately, should investors question the ability of the government to repay these bonds, they will be less likely to purchase new bonds, which means that outstanding bonds must be repaid with an increase in tax revenue. Not only would this raise taxes for every taxpayer, it would severely damage investment accounts. Therefore, as long as the government relies on deficit spending, and that investors are owed significant amounts of money in bonds, the government must issue bonds and these bonds must be purchased by investors, as to do so otherwise would severely damage the American economy.

The question then becomes, why does the United States engage in deficit spending? In order to answer this question, it becomes necessary to understand fiscal policy, in particular expansionary fiscal policy. Fiscal policy describes how a government influences the economy through taxation and spending. For example, when seeking to stimulate the economy, as occurred in 2009 and 2020, the government can lower taxes and increase spending. Such policy allows people to keep more of their money and receive more services, stimulating the economy. However, it also results in deficits. Theoretically, these deficits are paid off by the surpluses generated by the higher taxes and lower spending of contractionary fiscal policy, which the government would enact during periods of economic growth, as to avoid excessive growth. Because such contractionary fiscal policy would mean that people would lose more of their money and receive less services, the enactment of such policy would be political suicide for politicians, the very people who would enact such policy, contractionary fiscal policy does not occur.

It is on the basis of widespread deficit spending that Republicans propose cuts to discretionary non defense spending, on the basis that these programs are wasteful and cost the taxpayers billions. I would argue that these proposals are flawed for several reasons. In order to understand the flaws of these proposals, I think it is important how federal spending is categorized. To begin with, most government spending is non discretionary spending, which is long-term spending, used to fund programs like Social Security, Medicare, and Medicaid. What remains is either discretionary spending, or the net interest. Discretionary spending is what the government chooses to spend year to year, while the net interest is the cost of servicing the federal debt. Because of this, the discretionary spending is of the most concern when determining the federal budget. However, because of the cost of programs like Social Security, Medicare, and Medicaid, the spending which can be adjusted does not make up a completely significant portion of what the government spends.

For example, in Fiscal Year 2023, while the government collected 4.4 trillion dollars, it spent 6.1 trillion dollars, a deficit of 1.7 trillion dollars. Of the 6.1 trillion dollars that was spent, about 3.8 trillion (62%) was nondiscretionary spending, about 1.7 trillion (27%) was discretionary spending, and about 700 billion (11%) was net interest. Because nondiscretionary spending is untouchable, and net interest is necessary for the stability of the economy, only discretionary spending can be cut. In Fiscal Year 2023, the Department of Defense, whose budget falls under discretionary spending, had a budget of 816.7 billion dollars, approximately 48% of all discretionary spending. Because of this, the United States has by far, the largest military budget in the world. In fact, according to the Stockholm International Peace Research Institute, for Calendar Year 2023, the United States represented 37% of all worldwide defense spending. We can contrast this with the next largest spender, China, who represented 12% of all worldwide defense spending.

Beyond the fact that support for a larger military speaks to the great motivator of fear, I think we can also attribute the vast budget to the fact that the military serves a key function as a jobs program. Every soldier trained and equipped by the Army, every Fighter Jet built for the Air Force, and every shipyard operated by the Navy, represents jobs for both the workers directly involved, but jobs for those supporting the work directly or indirectly. Because of key role that defense can play in a local economy, Representatives and Senators vie for defense contracts in their districts and states, because these contracts represent thousands of jobs available to their voters. Thus, they have no incentive to cut spending, as cutting defense spending likely means less votes for them. We can see this with the Lima Army Tank Plant of Lima, Ohio. This plant is the sole producer of the M1 Abrams tank, of which the Army says it has enough. Despite this, its Representatives, like Jim Jordan, a member of the Republican party, have had the Army build more tanks from the plant, in order to justify its continued operation.

The problem is not with the actions of Rep. Jordan, whose actions in this regard no doubt benefit the people he represents, but with the hypocrisy of Republicans who propose cutting the marginally small amount discretionary non defense spending, on the basis of such spending being fiscally irresponsible, while increasing defense spending. If they can justify these increases because these increases will lead to jobs, increased spending on discretionary non defense spending can be justified as well. For example, the National Parks Service stimulates the economy of the communities near the National Parks, by bringing millions of tourists annually. In addition, agencies like the National Weather Service of the National Oceanic and Atmospheric Administration provide raw data to weather forecasters, which serves as the basis for private apps and services, free of charge. Finally, scientific research like grants issued by the National Science Foundation, act as a catalyst for science and research in the United States. Each of these agencies, one of dozens, play a critical role in the American economy, cost little, and are perpetually at risk of being cut by the Republican party.

Perhaps the Republican party is accurate in that the United States is on an unsustainable fiscal trajectory, due to the rising debt. If this is true, either revenue has to increase or spending has to decrease, likely both. If revenue must be increased, the burden must fall upon the wealthiest Americans, who will be the least likely to feel the increase. If spending is to decrease, either non discretionary spending must be reduced, or discretionary non defense spending should be targeted. To target discretionary non defense spending risks the elimination of vital services that serve the American economy. Assuming that the United States is on an unsustainable fiscal trajectory, to fail to resolve these issues, imperils the United States itself, despite its considerable wealth.