In tonight's State of the Union address, President Obama spoke to the challenge of our nation's fiscal insecurity. This issue, and its purported urgency, tends to make progressives cringe. For years we have heard the debt boogeyman used as justification for gutting programs and initiatives that mean a fairer economy and a stronger middle class. It is time that we lay aside that skepticism for a moment and consider the real, widespread impact an unchecked debt has on the economic health of the nation and its families.
Massive federal deficits and perpetual excessive national debt without substantial economic growth is inherently unsustainable. If the current balance sheet remains unchanged, the United States will be forced to finance a greater percentage of the federal budget through the issuance of U.S. Treasury notes, many of which are held by foreign debtors. Voicing skepticism about the increased reliance on foreign lending and the risks it poses to the economy, former Federal Reserve Chairman Alan Greenspan remarked, "it has become increasingly clear that reliance on foreign sources of savings is not desirable -- or perhaps even possible-over extended periods."
Excessive federal deficits and a prolonged debt burden "crowds out" private sector spending, especially spending on capital goods. Essentially, there is less money available to invest in the private sector to encourage robust economic expansion, because the funds that would be targeted for investment are instead used to pay the interest on the outstanding debt. A smaller private capital stock and a lower level of economic output are passed on to future generations, which hinders economic growth and burdens them with stagnated economic development.
If the current fiscal policy remains in effect, the federal government will spend $1 trillion in interest payments by 2020, alone. In just another eight years, 17 percent of all federal spending will be allocated for interest payments on the debt. Half of all income tax receipts will need to be allocated to pay the interest on the debt, which will exceed the size of the current defense budget.
While I applaud my Republican colleagues for engaging in a discussion on the national debt, and the threat it poses to economic security, simple "back of the envelope" analysis demonstrates that spending cuts alone will never soundly address this critical economic issue. The speech and its rebuttal have been heard. We are now called upon, as adults, to engage in the serious and difficult task of identifying spending cuts which will make us leaner, not weaker and choosing careful investment that recognize the importance of every tax dollar.
Of course, as the reality of simple accounting sinks in, we will realize that it is only with broad-based, comprehensive tax reform that we will find ourselves in the shared prosperity, economic growth, and budget surpluses of an earlier time.
Let's get to work.