A Plan To Pay Off The National Debt...
(Musings of your humble servant at
Rerum Novarum)
This is the text of a mostly finished Facebook note from November 4, 2017 which was completed recently for publication.
As of this writing, we are approximately $20 $26 trillion dollars in debt if we talk about the national debt alone.{1} To listen to many folks, the idea of paying this sum off is a pipe dream at best. I will concede that there is a serious lack of political will in both major political parties{2}; however, that does not mean that plans cannot be offered. I will now offer what I hope is a simple plan that everyone can get behind.
To start with, we need to
abolish baseline budgeting. I am not going to go into this in detail right now but suffice to say, by statute all budgetary items are automatically increased and right now that is approximately
7% a year on every budgetary item. We then see stupid political fights if say Republicans propose to reduce that 7% on some programs to say 4% and Democrats disingenuously claim Republicans are “cutting spending” or some other stupid claim. Reducing automatic increases is never an actual cut in spending and only morons think it is. However, there are no shortage of morons who do not mind making these sorts of claims to try and score cheap political points by appealing to the rubes amongst the populace who have no idea how any of this works. But to return to the point at hand here: as long as the baseline budgeting model is used, a bias exists in the budgetary calculation method that favours increased spending.{3} And when spending increases are the default mechanism to any budgetary projections, that makes balancing budgets very tough not to mention actually paying down debt
.
So first step in the process is eliminating baseline budgeting and replacing it with zero based budgeting starting from whatever the budget was ten years ago. I picked the figure of ten years ago because the budget was already bloated like a hippo ten years ago at $2.98 trillion. Surely no one would claim the country cannot survive on a mere $2.98 trillion per year, right? So with that in mind, every budgetary item is rolled back to its spending level in 2008 and any items not in the budget at that time are subjected to the rules involved with zero based budgeting.
Zero based budgeting in a nutshell requires that all spending must be automatically
justified anew each year or it will be eliminated from the budget. Zero based budgeting is not concerned with maintaining previous spending levels and places the default mechanism on budgetary reductions. So the first step in this plan is zero based budgeting so that we nip automatic budget increases in the rump from the get go.{4} The next part concerns actually balancing budgets.
I am going to part ways with many conservatives out there and say forget about a balanced budget amendment. Why? Because it is a true pipe dream. We will never get two thirds of both houses in congress to approve it so why expend energy on it? What we can do however is impose sequestration. And I propose we do this on every single item in the budget. Every budget item no matter what it is gets automatically cut every year. I propose a 5% sequestration on every budget item every year. This would remove the politics from various sides whining about any special favour being shown to one persons sacred cows over another because in this plan, everyone’s sacred cows get a 5% trim automatically.
Now as we start the process of operating with more of a balanced budget mindset, we can turn our attention to the debt itself. For it does not solve the issue of the debt to just run a string of balanced budgets if the overarching debt is not actually paid off. So here is the plan for that: establish a sinking fund. Alexander Hamilton put one in place in 1790 aimed at retiring 5% of the debt every year until it was paid off. And while it took a while to do, the debt was paid off in full by 1835.{5} So using a similar methodology, a sinking fund is established aimed at paying down 5% of debt a year. The money is apart from the budget and used only for paying down debt principal. How does it work?
The sinking fund uses the basic concept of compound interest to eradicate debt quickly. The origins of the idea date back to 14th century Italy, but I will start with 18th century Great Britain and the United States. William Pitt{6} employed the fund in the 1780s as British debt accrued at a rapid rate due to the war, and the US chose a similar path in the 1790s. A set amount of money was put aside every year to redeem outstanding government debt. The money was used to purchase public securities as an investment. Each year the interest gained on public securities was added to the fund. With the simple use of compound interest, the fund could grow significantly.{7}
As far as how the sinking fund would be funded, recourse can be had to what Alexander Hamilton said in The Federalist insofar as the advantages of consumption taxes:
It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty, that, "in political arithmetic, two and two do not always make four." If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.
Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment. Either the value of land, or the number of the people, may serve as a standard. The state of agriculture and the populousness of a country have been considered as nearly connected with each other. And, as a rule, for the purpose intended, numbers, in the view of simplicity and certainty, are entitled to a preference. In every country it is a herculean task to obtain a valuation of the land; in a country imperfectly settled and progressive in improvement, the difficulties are increased almost to impracticability. The expense of an accurate valuation is, in all situations, a formidable objection. In a branch of taxation where no limits to the discretion of the government are to be found in the nature of things, the establishment of a fixed rule, not incompatible with the end, may be attended with fewer inconveniences than to leave that discretion altogether at large.{8}
Now one reason why Hamilton’s original sinking fund while successful was at the same time erratic is it was not set aside solely for retiring the public debt.
I am proposing therefore a greater restriction on this use of a sinking fund; namely, that it would only be used for retiring public debt. As for funding, I think it could be largely handled the same ways Hamilton funded his: through western land sales and consumption taxes on luxury items. The federal government owns
a majority of the land among the western states but they also own land in other states. Perhaps a law that specifies a maximum of say 10% of a state's land in states admitted to the union prior to February 15, 1912{9} and a maximum of 30% of a states land in states admitted subsequent to that time can be held by the federal government with a ten year flex period to sell said land. There could also be specific types of taxes{10} formulated specifically for this purpose and it could be applied specifically and only for retiring public debt.
While far from complete, this is a broad based outline for being able to start the process of getting a handle first on deficits and then on the national debt which is in excess of $20 trillion now. Any solution needs to be bipartisan as well as handle budgetary items across the board so no favourites are played for anyone. And what needs to be recognized is that both budgets need to be cut as well as taxes raised and that the government cannot be trusted without constraints to do the right thing.
We can have contested arguments on a number of issues but the national debt as former Indiana Governor Mitch Daniels liked to say is
the new Red Menace and therefore we should agree to fix this bipartisan problem with a bipartisan solution.
Notes:
{1} I have no intention of touching on unfunded liabilities in this note as that is a subject best handled separately.
{2} It may exist in smaller political parties to a certain extent but as they are too insignificant to make a real difference, nothing more needs to be said about them on these matters.
{3} Because the operative presupposition with baseline budgeting is that federal spending keeps pace with inflation.
{4} Considering that the total budget in 2008 was $2.98 trillion and the total revenue from 2018 is projected to be $3.65 trillion, we already start with a $670 billion surplus of funds for immediate debt reduction sans any increased amount needed to service interest on the debt that has increased by roughly ten trillion since that time.
{5} The budget already has funds for servicing the interest on the debt so it need not be dealt with here.
{6} The prime minister of Great Britain.
{7} Which considering the extent of our national debt would be of assistance in tackling it.
{8} Publius: Excerpt from
The Federalist #21 (
circa December 12, 1787)
{9} This would make the 10% threshold only apply to the lower 48 states.
{10} This would involve consumption taxes on luxury items.
