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Request a DemoThe debt ceiling, a lack of integrity and the possible fallout
In the coming days, the United States again confronts our statutory debt ceiling. This is a 1917 law (increased every year or so) establishing a cap on federal government debt. The law itself runs up against the 14th Amendment to the Constitution, which was intended to reassure bondholders that we pay our Civil War debts. That means the debt ceiling may be unconstitutional, giving the Biden administration the option of simply printing money to cover the debt.
The debt ceiling law is politically convenient because it offers an opportunity for members of both parties to engage in a bit of political theater. It is important to remain focused on the real issue of debt rather than the political shenanigans. I expect some sort of compromise, but that is more hope than actual analysis.
Neither the Republicans nor Democrats have performed satisfactorily on this ballooning public debt. The GOP showed zero concern about debt when a Republican president was in office. Not a single Hoosier Senator or member of Congress voted against the Trump administration’s Tax Cut and Jobs Act (TCJA) or the CARES Act. These bills fall in first and third place in terms of recent contributions to the debt.
The Democrats, who voted almost unanimously against the TCJA, voted unanimously for the American Rescue Plan, which came in second place for debt loading. There’s not a clean hand in Congress on the current debt. Insofar as I can tell, the sole Republican speaking honestly about the GOP’s profligate history is Mike Pence.
As I wrote at the time, each of these large spending bills had some merits, and there remain reasonable arguments for each. The problem is that so many now in office want to remake themselves as thoughtful budget hawks, but when it mattered, they were nothing of the sort. It is the lack of integrity that highlights the real problem. No one can be honest about the root of the problem.
In 1946, right after winning World War II, our debt-to-GDP ratio stood at 119%. Today it sits at 121%, down from 127% two years ago. But, there is no peace dividend. Our spending problems are not about our military spending, which is today at near historical lows as a share of GDP.
The big-budget items driving our deficit are spending for Medicaid, Medicare, Social Security, and federal government and military retirements. And yes, I know Social Security and Medicare are supposed to be separate budget items. They are not.
If we cut all foreign aid (including Ukraine defense), housing subsidies, environmental remediation, research, discretionary education spending, immigrants, parks, and clean air or water, we wouldn’t make a dent in our debt. Altogether, these spending items wouldn’t even cover the interest payments on our debt.
In order to reduce our debt in the coming decades, we are going to have to do two very unpopular things: raise taxes and cut spending. We are going to have to do more of both than almost anyone really imagines.
On the revenue side, we are going to have to sunset the TCJA and raise marginal income tax rates on middle- and high-income households. By middle, I mean everyone who pays an income tax. Also, we probably must extend the Social Security taxes (FICA) across all earned income types.
On the spending side, we are going to have to extend retirement age, probably to 70 years or so for younger workers. We won’t have to means-test benefits, because we will have higher taxes on more affluent households. But, we will reduce retirement benefits for younger workers, and end the practice of increasing Social Security for older adults who work. We are also going to have to reduce the rate of inflation adjustments for Social Security recipients.
If all of that sounds distasteful to you, too bad. What I have just outlined is probably the easiest resolution to our current debt problem. But, what if we choose a different path?
We could cut defense spending. I’d vote to eliminate the entire Marine Corps. If we did that, it would only take another 117 years to eliminate today’s debt, though that wouldn’t come close to balancing the current budget. So, we’ll have to cut something else. If we cut our foreign aid, we could pay off the current debt, not counting interest, in 600 years. Alternatively, we could reduce overall Social Security costs by 10%, through later eligibility, and extend FICA taxes to a further 10% of earnings, and retire the debt in 60 years.
It is probably wise to ignore the political talking points about our debt and focus on the arithmetic. Still, many might wonder what if we ignore all this and blow off our debts, and default. After all, many Americans declare bankruptcy. Well, that step would be somewhere between a crisis and a full-blown economic catastrophe.
The United States borrows money like every other government does. We have treasury bills notes, bonds, inflation-indexed securities, floating rate notes, domestic series bonds and the like. Altogether this is about $31.5 trillion in borrowing. About 13 cents on every federal tax dollar collected goes to paying interest on these debts (or about twice the annual cost of the entire Marine Corps).
The reason the U.S. can borrow all this money is simply that everyone believes we will pay it back. Our creditworthiness ensures a reasonably low rate of borrowing and keeps our currency as the world’s reserve currency. So what happens if we default?
Well, there will be a flight away from U.S. securities. This will lead to financial markets devaluing our bonds, leading to higher borrowing rates on futures. Since our bonds turn over all the time, that would mean an almost immediate increase in the share of taxes we have to spend to service the debt.
If the U.S. defaults on our debts, the stock market will decline precipitously. It would strengthen China and Russia, while weakening the U.S., perhaps sliding our economy into recession along with most of our allies. The worst forecast I have seen suggests that an extended default would result in a Great Recession-level shock to the global economy.
I think this is an unlikely scenario, only because the domestic political backlash would be so severe we will come to some compromise. But, I’m a notoriously bad political forecaster. Rather than risking default, we’d be wise to heed the rare wisdom of then-President Donald Trump’s advice on the debt ceiling: “That’s a sacred element of our country. They can’t use the debt ceiling to negotiate.”
Michael J. Hicks, Ph.D., is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. He can be reached on Twitter @hicksCBER.
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3 takeaways from Wednesday’s gubernatorial debate
Three Republicans vying to be the state’s next governor ramped up attacks on the gubernatorial front-runner, U.S. Sen. Mike Braun, during a televised Wednesday debate.
Five of the six Republican candidates — Braun, Lt. Gov. Suzanne Crouch, former Commerce Secretary Brad Chambers, Fort Wayne businessman Eric Doden and former Attorney General Curtis Hill — qualified for the debate, hosted by WISH-TV. Jamie Reitenour was the lone GOP candidate to be excluded from the event. Her campaign said she was disqualified for not meeting a $300,000 fundraising stipulation by December.
Here are three takeaways from the face-off.
Attacks on Braun increase
Braun, who touts a large lead in recent polls and former President Donald Trump’s endorsement, was the subject of many pointed attacks from Chambers, Doden and Hill. Crouch, however, mostly abstained from criticizing Braun directly during the debate.
Hill lambasted Braun for the latter’s claim of being a political “outsider,” saying the senator has “been in the system long enough.” Chambers similarly lobbied skepticism of Braun’s claim, arguing that a candidate who has been on the ballot as often as Braun couldn’t hold the title. Braun, a state lawmaker from 2014 to 2017 and a U.S. senator since 2019, said he still considered himself a political outsider, choosing to define the term by “what you have done for most of your life.” He added that the “ultimate outsider” had endorsed him.
In addition, Chambers ribbed Braun for his record on his taxes, claiming the senator “touched 45 tax increases” during his time in the Indiana General Assembly. Doden again questioned Braun’s stances on qualified immunity and Black Lives Matter.
Immigration
The candidates’ pursuit of Braun continued throughout the night, especially when discussing the nation’s southern border and their stances on migrants.
“Sen. Braun used the word[s] ‘lie’ and ‘distort.’ I think that’s applicable to his role on the border,” Chambers said. “There’s 7 million people that have come in on his watch. … So he’s done literally nothing to stop the flow of illegal aliens over our border.”
Braun blamed President Joe Biden’s administration for what he believes are its failures at the border. All of the other candidates expressed similar sentiments but also blamed Congress.
“President Biden needs to do his job. Congress needs to do their job, and that includes Sen. Mike Braun,” Doden said. Doden’s policy proposals on the matter include stricter sentences for drug dealers and more resources for people with addictions.
Hill said Hoosiers sent Braun to find solutions to a range of issues, including immigration. “I don’t want to hear blame — ‘it’s the Democrats; we couldn’t get that done,’” the former attorney general said. Hill also said Gov. Eric Holcomb “relented” to his calls to send Indiana’s National Guard to the southern border days after he suggested it.
Blaming “illegal immigrants” for “bringing deadly fentanyl into our communities,” Crouch said she would send them to sanctuary cities outside of Indiana.
Chambers claimed migrants are “taking jobs away from Hoosiers” and suggested they are causing increased crime. He, like all of the other candidates, committed to maintaining a Hoosier presence at the southern border.
Braun said his opponents “need to get Government 101 down” and shifted blame to the Democratic Senate. He added that it was “easy” for the other candidates to suggest immigration policies when they “had never been in the position of doing it.”
Education
The candidates also addressed their thoughts on education, with some showing slight differences from Republican state lawmakers over policy priorities.
Asked whether they supported the recently passed Senate Enrolled Act 1, which could see some third graders who are not reading on grade level held back, only Crouch and Chambers raised their hands.
Chambers, echoing Republican state lawmakers, said it is unacceptable for third graders to not have learned to read. He suggested the state spend less money on building costs and put more money into teachers’ salaries.
Crouch envisioned consolidating several state agencies that deal with education topics into one overarching agency, passing the estimated savings on to classrooms.
Braun wanted “more choice, more competition and something completely different.” However, he did not specify why he disagreed with the new law.
Hill said the state should weigh students’ needs individually rather than enforcing a “one size fits all” approach. “We need to provide individual assessments to make sure we are doing the right thing by these children,” he said. He also suggested the state “shrink the size” of the Indiana Department of Education.
Doden proposed a teacher investment program to address Indiana’s “teacher shortage.” The program, he said, would attract more teachers to the profession by ensuring they do not pay property and income taxes.
Regarding higher education, Hill said too many students are enrolling in college for a “worthless” degree. All of the candidates praised work-force development efforts — apprenticeships, internships, military programs, vocational programs — and said they would be key to improving Hoosiers’ outcomes.
“Higher [education] has stigmatized those pathways,” Braun claimed. “Our guidance counselors won’t mention them.”
Wednesday’s debate followed another televised debate hosted by Fox59/CBS4 on Tuesday, when four of the candidates — Braun, Chambers, Crouch and Doden — debated time zones, embryos and leadership styles (Hill and Reitenour did not qualify). They also graded Gov. Eric Holcomb’s tenure. Holcomb has yet to endorse any of the candidates, saying he awaits more policy specifics from their campaigns.
Previously, all of the candidates sparred at a March 19 business forum and a March 11 debate hosted by Current Publishing at the Palladium in Carmel.
Each of the candidates has been invited to participate in the Indiana Debate Commission’s April 23 debate, the last before the state’s May 7 primary. The winner of the Republican primary will face Democratic candidate Jennifer McCormick and Libertarian Donald Rainwater in the November general election.
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Statehouse memorial service for Sen. Breaux set for next week
Memorial services for the late state Sen. Jean Breaux will include a public program at the Statehouse Rotunda next week.
Breaux, who died March 20 at the age of 65, will be honored with a public viewing in the Rotunda set for 4-7 p.m. April 5, the Senate Democratic Caucus announced Wednesday. An official memorial program is planned for 5 p.m.
A Celebration of Life for Breaux is scheduled for 11 a.m. April 6 at Mount Carmel Baptist Church, 9610 E. 42nd St. in Indianapolis. Viewing is planned for 9-11 a.m. at the church.
Breaux, a Democrat, had represented District 34, which covers much of northeast Indianapolis, since 2006 and was the Senate’s assistant minority leader from 2012 until 2020.
She was absent from the entire 2024 legislative session because of health problems.
Breaux died two days after releasing a statement saying she planned “to focus on enjoying the time I have left surrounded by my loved ones.”
“I want to express my sincerest gratitude to everyone who has reached out, to my Statehouse colleagues and team, and to the community I have been so incredibly grateful to represent for nearly two decades,” Breaux said in the statement.
Breaux’s family asked that in lieu of flowers, donations be made to the National Kidney Foundation in her memory.
Tom Davies is a Statehouse reporter for State Affairs Pro Indiana. Reach him at [email protected] or on X at @TomDaviesIND.
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