Chris Edwards of the Cato Institute’s DownsizingGovernment.org highlights a new report that shows how federal debt dwarfs all of the other monuments in the nation’s capital.
The federal government spends hundreds of billions of dollars more each year than it collects in taxes. Those large
budget deficits are financed by issuing growing amounts of debt. Federal debt now totals more than $13 trillion, or
about $107,000 for every household in the nation. Accumulated federal debt has doubled over the past seven years, and it will keep growing unless policymakers enact major reforms.
High and rising debt harms the economy, and it will impose a large burden on future taxpayers. It could also lead to a financial crisis, like we have seen in Greece and other nations. …
… Now let’s consider the effects of federal spending financed by borrowing:
1. More Spending Induced. The deadweight losses caused by spending on subsidy and benefit programs are the same
whether programs are financed by debt or current taxes. However, the availability of debt financing may induce policymakers to increase overall spending, particularly on low-value programs.
Since borrowing makes programs appear to be “free” to citizens and policymakers, the government has less
incentive to be frugal and to prune budget waste.
2. Tax Damage Moved to the Future. With borrowing, the deadweight losses from taxes are moved to the future when
taxes are raised to pay the interest and principal on the debt.
The damage from the funding of programs is imposed on people down the road because that is when the government
will use coercion to extract the needed money from taxpayers.
Follow the link above to find three more negative consequences of federal spending that relies on borrowed money.
