Tax Cuts Didn’t Lay the Federal Debt Trap

I t’s that time of the year again when the debate over raising the federal debt limit is back in the news. Indeed, just three weeks ago, U.S. treasury secretary Janet Yellen suggested that we’d reach the limit by sometime in mid December. Of course, the U.S. House of Representatives just voted to raise the debt ceiling by another $480 billion back in October. For those keeping score at home, that was the 21st time that the debt ceiling has been raised since the last federal budget surplus — which was in 2001.

The Wall Street Journal editorial board recently published a piece titled “Boom Times in the Beltway,” which helpfully identified the real driver of the budget deficit. In the article, the Journal noted that total federal tax revenues just hit an all-time high. While the business-tax-rate reductions included in the federal Tax Cuts and Jobs Act of 2017 lowered the federal corporate-tax rate from 35 percent to 21 percent, federal corporate-tax revenue still hit an all-time high in fiscal year 2021. That’s right, even with all the big-government advocates attempting to make the case that previous federal tax-relief efforts have caused our national debt problems, it is clear that federal overspending is the real culprit.

To be sure, Congress resumed debate to address the debt ceiling once again. But imagine, for a moment, a day when this debt-ceiling drama was a thing of the past. A balanced federal budget, one that kept spending levels below collected revenues throughout the business cycle, could put an end to Congress’s needing to continue the debt-limit spiral.

Let’s compare the failed D.C. approach with budgeting from an individual family’s perspective. If a family had a budgeting problem whereby it was racking up credit-card debt month after month, paying the minimum payment and incurring all the interest charges — all while earning record wages — most Americans would, without hesitation, say that the family should look to cut back and reprioritize its spending. By Washington logic’s, though, that same family would solve its budgeting issues by applying for more credit cards or asking for an increase in its credit limit to continue financing the spending spree at even higher levels. Alas, rational budgeting is a foreign concept within the Beltway today.

The federal debt currently stands — or, perhaps more accurately, wobbles — at $29 trillion. While that is an unfathomable number, the sad truth is that it is easy to become desensitized to the massive difference in magnitude between the numbers $1 million, $1 billion, and $1 trillion. According to a quick Internet search, it would take about eleven days to count to $1 million — and about 30 years to count to $1 billion. And $1 trillion? Well, as Utah state representative Ken Ivory, the chairman of the ALEC Center to Restore the Balance of Government, put it:

Counting by ones, it takes more than 32,000 years to count to one trillion. And that’s allotting only one second for numbers like nine hundred and ninety-nine billion, nine hundred and ninety-nine million, nine hundred and ninety-nine thousand, nine hundred and ninety-nine.

Let that sink in as you consider that some of the big-government spending ideas being discussed in Washington today would spend more than $5 trillion, according to nonpartisan estimates.

The federal debt now exceeds $229,000 for every taxpayer in America. This is clearly not sustainable, no matter how many times the debt ceiling is raised or suspended. If Congress fails to start implementing fiscally responsible policies, Americans will pay the price in higher taxes and foregone economic growth. Take, for instance, the cost that overspending brings in the form of the ugly price inflation that we continue to see at gas stations and grocery stores across America today. As businessman and noted economic commentator Andy Puzder has outlined, this high inflation has caused real wages to actually fall for Americans since the start of the Biden administration.

Also, let’s remember some basic lessons from the 50 laboratories of democracy: Forty-nine out of the 50 states have balanced-budget requirements on the books. Only Vermont and our federal government in Washington, D.C., do not. So often our best public policy comes from the states — and, thankfully, our system of competitive federalism identifies those that can best address some of the most challenging policy issues at the federal level. Emulating the examples of free market fiscal responsibility in states such as Utah, South Dakota, Florida, North Carolina, and Arizona — just to name a few top ranking states in our annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index — will be key to avoiding the spending and debt trap that we face right now in Washington, D.C.

Until then, do not buy the spin: Tax cuts are not the reason for the debt trap. Irresponsible-spending growth has created the problem, and unfortunately the political drama surrounding federal debt ceiling will continue until Congress can learn to pass responsible budgets.

Jonathan Williams is the executive vice president of policy and chief economist at the American Legislative Exchange Council. Follow him on Twitter @taxeconomist. Nick Stark is a policy analyst for the Center for State Fiscal Reform at the American Legislative Exchange Council.