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The debt spiral
Why our out-of-control national 
debt matters (hint: higher taxes)

By Congresswoman Virginia Foxx

In November the United States reached an historic milestone.  The national debt hit $12 trillion for the first time ever.  This was made more shocking by the fact that this milestone came so quickly on the heels of the last.  It was, after all, just eight months ago that we saw the debt top $11 trillion. 

Much of this debt is the result of spending policies that I strongly and consistently opposed from their inception.  It started last year with the Bush administration’s misguided $700 billion bailout plan and continued this year with the Obama administration’s failed $800 billion stimulus package.  Add to these fiscal mistakes a catch-all spending bill that increased non-defense spending by ten percent this year and you have a recipe for a debt disaster. 

The bailouts, the stimulus, the out-of-touch increases in government spending are all squandering money we don’t have, much of it borrowed from foreign lenders like the Chinese government.  In fact, this year we racked up debt three times faster than ever before.

Next year taxpayers will shell out approximately $394 billion just to pay the interest on this debt—that’s more than $1 billion a day.  By way of comparison, the IRS collects about $900 billion in personal income taxes in a year. 

This means that close to half of federal income taxes simply disappear into thin air to help maintain Uncle Sam’s credit rating—and it is going to get worse.  The Obama administration estimates that the national debt will balloon another $4 trillion over the next five years. 

It’s easy to become numb to these astronomical figures.  Who has ever seen a trillion dollars, after all?  But there is a stark reality to Washington’s overspending.  Some day the bill is coming due.  Maybe today’s taxpayers will dodge the debt repayment bullet—although that’s doubtful.   Eventually, though, we will have to face our debt problems head-on. 

You could think of our national debt like one of those notorious adjustable rate mortgages we’ve heard so much about during the mortgage meltdown.  Much of the national debt is financed with short term borrowing: sometimes a month, a year or a decade.  Today, thanks to super low interest rates, the government’s borrowing binge enjoys the charade of interest rates that average about one percent. 

Of course there’s a catch.  While it may cost one percent on average to service the national debt this year, the only thing standing between that one percent and interest rates many times higher is a full recovery of the credit markets or the economy. 

Once interest rates return to their historic averages taxpayers will be faced with crushing interest payments.  Any new debt (of which there is projected to be plenty) and all short-term debt coming due will be paying a much higher interest rate.  This reality is years, not decades, away.

Once interest rates start ticking higher we’ll have a debt time bomb on our hands.  Suddenly the $394 billion in interest will look like a “good deal”.  And this time around there won’t be any subprime lenders or Wall Street bankers to point fingers at either.  The blame for the runaway debt and the coming tidal wave of interest payments will be laid squarely at Washington’s profligate feet. 

What about Joe taxpayer?  It turns out that today’s accumulation of debt is tomorrow’s tax increase.  Few people talk about it, but more debt and higher interest rates—which are both inevitable—invariably lead to higher taxes.  So the huge deficits we are expected to see for the indefinite future represent future tax increases. 

That’s why I believe that the best Christmas present Washington can give to America is to pledge to stop the reckless and unprecedented spending that has characterized the last year or so.  The pork-barrel stimulus, outrageous bailouts and unfathomable budget increases all represent new debt and future tax increases. 

We’ve got to kick the habit of deficit spending. If not, our prosperity will be crippled by a wave of debt payments that weighs on paychecks and pocketbooks, while smothering opportunity for the next generation of workers and taxpayers.