Understanding the national debt limit

The national debt limit has been in the news for several weeks and will undoubtedly be in the news after the debt limit decision has been made whatever it may be. The national debt limit of our country is something we constantly hear about from year to year. The question is, “do we as individuals understand what raising the debt limit or not raising it would mean“. Raising the debt limit simply means increasing the amount of money the government can borrow to finance its operations and honor its current responsibilities. This is a simple fact. The question that most individuals want answered is what would happen if the debt ceiling is not raised.

Raising the national debt limit of the United States has occurred 74 times since 1962, and Congress has never refused to approve the raise. Have these been wise decisions? This question might be answered by understanding what would happen if the ceiling were not raised. Another question which has been widely discussed is how we keep getting to the point where we need to raise the debt limit. The answer is a simple one. The government spends or commits more money than it receives.

The ramifications of not authorizing the debt ceiling increase may not be fully understood or even known to some extent. One thing for sure is, if we cannot borrow more money, the government will not be able to honor its current and future commitments and responsibilities. I am not advocating refusing to raise the debt limit, but the circumstances which created the situation must be addressed to prevent it from reoccurring in the future. The government provides critical support functions for many Americans and if the money is not there and cannot be borrowed that support will not exist. This would hurt those that depend on that support.

Basically the government would not have the funds to honor its commitments other than the funds already allocated through current appropriations. Disasters such as the tornadoes which hit the southern part of the country are examples of government coming to the aid of those in need. Lack of government support in these situations is unacceptable.

The current battle with the debt ceiling, which from reports will be met by the middle of May, must be addressed. Decisions need to be made by Congress regarding the spending that continues to increase. There have been reports that measures can be taken to extend the time before we reach the current debt limit. We as a country cannot afford to continuously raise our debt limit. It increases the burden on taxpayers and can affect our credibility if we continue to borrow without taking measures to get our financial house in order. Granted we did not get in this situation overnight and we will not get out of it overnight. What must happen, and to some extent the present Congress appears to have gotten the message, the public wants a change in the spending habits of Congress.

The concept of borrowing is something we as individuals understand. Sometimes events occur that cause us to increase our debt to meet our immediate needs. The same can be applied to the government. With the downturn in the economy, money had to be borrowed as a result of less revenue being received. Increasing the debt limit for this situation can be understood, but continuously increasing our debt limit as has occurred since 1962, and this does not make sense.

Authorizing an increase in the debt ceiling must be matched with agreements to put the country on the road to fiscal responsibility. This may not be easy, but it must be done. Congress needs to decide two things. The first deals with changes that are going to take place in the way government spends the taxpayer’s money. The second involves changes in the tax structure or system that is needed to lift the tax burden off of businesses and individuals. The current situation is hurting the economy and job growth.

In regards to our current tax structure, which is complicated and difficult to understand, it must be revamped to provide incentives that will stimulate business activity and increase the need for employees. There are proposals now being processed through committees that address tax revenue and our tax system as it is now. Some of the changes being proposed will be a cultural as well as financial. Difficult decisions need to be made with regards to our current tax structure, and if the right decisions are made by Congress, things in the future should look a lot different. The amount of revenue and the source of revenue the government needs to operate will be determined by the methods chosen in revamping our tax structure and the way government spends money. Some say the IRS needs to be eliminated, but I disagree with that position. The IRS does not need to be eliminated, but they do need to change the focus associated with the revamped tax structure, however it will look with the changes being considered. When more people are working it provides more income for the government to run its operations. The more money being received reduces the need to borrow.

One last point to make is that, compared to the rest of the world, our economy and our GDP (Gross Domestic Product) are still relatively strong. I believe that the vitality of our economy and the talent of our workers are unequaled in the rest of the world. We need to utilize this talent by providing an environment where businesses flourish, demand increases and the need for jobs increase. Changes in our tax structure must take place to create these conditions while providing the income necessary to run the government.