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How to Balance the Budget without Raising Taxes

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John Cornyn, the U.S. Senator from Texas, has ignited a firestorm with an op-ed in which he stated that it might be necessary to “partially shut down the government” as part of the upcoming debt-ceiling debate in “our ongoing fight to bring fiscal sanity to Washington.”

Cornyn correctly points out that the “biggest fiscal problem in Washington is excessive spending, not insufficient taxation.”

Unfortunately, however, Cornyn is just whistling Dixie, and both he and President Obama know it. Cornyn’s threat to “shut down the government” is nothing more than a negotiating ploy, one that he’s hoping will induce Obama to agree to spending cuts in return for lifting the debt ceiling one more time.

Is there a way to balance the budget by slashing spending without raising taxes?

There certainly is.

All that Cornyn and his fellow congressional Republicans need to do is simply refuse to raise the debt ceiling when it comes due in a month or so.

That would do it. Refusing to raise the debt ceiling would succeed in slashing federal spending and in balancing the budget without raising taxes.

Federal spending totals around $3.5 trillion. Federal tax revenues total around $2.4 trillion. The difference is around $1.1 trillion.

That means that the federal government is spending $1.1 trillion, more or less, in excess of what it is bringing in with taxes. It’s that amount–$1.1 trillion—that must be borrowed. That borrowing will end up adding another $1.1 trillion to the total federal debt, which is already around $16 trillion. A family of four currently owes more than $200,000 as its share of the federal government’s debt.

So, what happens if the Republicans simply refuse to authorize an increase in the debt ceiling, not as a negotiating tactic but rather as a final decision?

That would mean that the federal government would be prohibited from borrowing any more money and that it would be forced to live within the $2.4 trillion it receives in tax revenues.

Immediately, $1.1 trillion in excess federal spending would be eliminated, since the government could no longer borrow to pay for the $1.1 trillion in expenditures that exceed tax revenues.

That would mean that the budget would immediately be balanced, given that federal expenditures would equal federal tax revenues.

President Obama would then bear the responsibility of deciding how to slash that $1.1 trillion in federal spending. What’s wrong with that? Isn’t that what governors and mayors do all the time when they’re faced with a shortfall in tax revenues?

Statists say that that would mean a default in paying the government’s already enormous debt. Nonsense. If President Obama determines that payment of the government’s debt should have priority over other expenditures, then that’s where a portion of the $2.4 trillion dollars in tax revenues would be committed. He’d have to slash spending elsewhere.

Reducing federal spending by $1.1 trillion isn’t an ideal solution from a libertarian standpoint, given that it would still leave illegitimate welfare-warfare programs in existence, albeit in reduced form. But at least it would help restore “fiscal sanity,” to use Cornyn’s term, to the federal government.

It should be clear by now that the President has absolutely no intentions of significantly reducing federal spending in the near term. He’s already made that clear. In fact, he thinks that more federal spending won’t lead America into bankruptcy, like it did with the Soviet Union and Greece, but rather will serve as a “stimulus” to economic prosperity. How ridiculous. The next thing he’ll tell us is how the Cuban and North Korean governments just need to spend more money to achieve economic prosperity in those countries. Republicans, who used to brag about how Ronald Reagan supposedly brought down the Soviet Union by making it spend its way into bankruptcy, know better.

Indeed, if Obama were serious about reducing federal spending, he would have done it after the last debt-ceiling debate. Instead, after the debt ceiling was lifted a couple of years ago, Obama continued on his merry, massive spending spree, knowing that he could easily cow the Republicans into raising the debt ceiling again a couple of years down the line.

Some statists have suggested that if the debt ceiling isn’t raised, Obama should just ignore it and continue spending as if it had been raised. Fine. That would provide Republicans with the opportunity to impeach him, convict him, and remove him from office (before he has a chance to confiscate everyone’s guns). And his early removal from power would be entirely legal under our form of constitutional government.

Even if Cornyn’s strategy does induce Obama to come to the negotiating table, everyone knows that whatever deal is struck will involve tax increases that take place now and spending “cuts” that take place several years from now. Everyone also knows that the “cuts” won’t be real cuts but rather smaller increases in federal spending.

The debt ceiling is an acknowledgement that too much debt is a threat to the well-being of our country. As Cornyn put it:

If we don’t reduce spending and reform our three biggest entitlement programs – Medicare, Medicaid and Social Security – then we will strangle economic growth, destroy jobs and reduce our standard of living. With the national debt above $16 trillion, and with more than $100 trillion in unfunded liabilities hanging over us, our toughest fiscal decisions cannot be postponed any longer.

The upcoming debt ceiling provides congressional Republicans with the opportunity to save the country from Obama’s out-of-control federal spending. All they have to do to slash federal spending and balance the budget is refuse to raise the debt ceiling.

Will they rise to the occasion? Can they withstand the mainstream press’s Chicken Little, Y2K, and Mayan Calendar predictions about what will supposedly happen if the debt ceiling isn’t raised?

Don’t count on it. My prediction: Cornyn and his Republican cohorts in Congress will cave. They always cave.

 

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.