Raising debt ceiling, cutting spending is crux of issue


The partial shutdown of the federal government broke records on Twitter and other social media last week with much of the criticism aimed at a dysfunctional Congress or the handful of Republicans “holding the country hostage.”

However, many seem to miss the point that it is not so much the effort to repeal the Affordable Care Act, otherwise known as “Obamacare,” as it is the fact that very little has been done to curb the federal government’s appetite for spending. The problem has long been known, and while acknowledging a problem is the first step toward recovery, action must be taken to correct it. Unfortunately, neither Congress nor the administration likes taking back what it has already promised constituents.

In fact, elected officials at all levels love to pander to their constituents and try to be everything to every one of their voters. Government at the federal level has gone far beyond the vision of the Founding Fathers — to provide national defense for the struggling Colonies. Financing the Revolutionary War and later the War of 1812 is a good study in understanding the use of credit to finance emergencies and the importance of maintaining credit worthiness.

The Colonies struggled to finance the Revolutionary War as they were just that, colonies with little infrastructure for the collection of taxes and a fledgling economy that was largely an agricultural society. Great Britain, on the other hand, had an established system by which it could levy and collect taxes to run the government and, in this case, to finance a war.

Alexander Hamilton observed that Great Britain had used the power of credit to issue notes or bonds in order to borrow funds from the private sector with the promise of repayment with attractive interest rates. The Colonies found an ally and lender in France, an arch enemy of Great Britain.

Thomas Jefferson and James Madison, two future presidents, were opposed to the idea of borrowing funds. Fearing the country would be obligated to France with no resources with which to repay those funds, both sides struggled to win the favor of the Continental Congress and its leaders. In the end, Hamilton was able to convince the delegates and leaders that the only way the Colonies could beat back the British was to have sufficient funds to supply the troops and purchase the resources for battle.

Thus, the Revolutionary War and, subsequently, the War of 1812, were won not on the battlefields but in the financial markets. What Hamilton saw was that a victorious young nation could rebuild its economy and generate the wealth that would help repay the debt incurred to pay for the war. Years later, both Jefferson and Madison admitted that borrowing funds for emergencies was a viable alternative to raising taxes. Indeed, the country’s leaders did everything they could to accelerate the repayment of that debt.

Such is not the case with the debt the country owes today. The money being borrowed today is not only for national defense but, in many cases, to basically keep the doors of the federal government open, to fund programs that would otherwise be considered operating costs. The need to borrow reflects the plain and simple truth that the country’s leaders are spending well beyond the resources taxpayers are willing to provide in the way of taxes and tariffs.

Federal leaders have borrowed so much that a good portion of every dollar raised by either issuing debt or collecting taxes goes toward servicing the debt that is outstanding. While elected officials dislike cutting programs and spending, doing so is the only realistic solution to the dilemma the nation faces. What is frustrating for most taxpayers is not so much that the federal government will shut down, but the fact that officials in Congress as well as in the administration have known about this dilemma for a long time and have not been willing to address it.

Until Congress and the administration are willing to sit down and decide what are truly essential programs, the American taxpayer will be faced with this same crisis every few years.

Lowell L. Kalapa is president of the Tax Foundation of Hawaii.