Tags: income | inequality | debt | federal

Fortune: More Government Debt Means More Income Inequality

By    |   Friday, 27 June 2014 11:28 AM

The gap between rich and poor could widen further if the federal government keeps shifting the costs of its current spending to the next generation.

So says Fortune, in a guest column by Bill White, former Houston mayor and chairman of Lazard Houston. White notes the non-partisan Congressional Budget Office estimates federal interest payments on the debt will soar from $415 billion in 2014 to $1.1 trillion in 2023.

Accordingly, he says, “it is hard to deny that rising debt gives creditors a larger claim on future federal tax revenues. By 2023, debt service will absorb 45 percent of all personal and corporate income tax revenues, leaving less available to pay for anything else.”

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White said that in recent years, progressive voices seemed to have abandoned their traditional concerns about the impact of federal debt on income inequality.

Thomas Jefferson and Andrew Jackson both were on record as opposing the shackles of federal debt service and its impact on government and the people, he said. Franklin Roosevelt vetoed hundreds of spending bills in order to reduce the burden of debt on future tax revenues.

But today, many progressives are on record as being sincerely worried about the potential impact of balanced budgets on the social safety net.

“The fact that the federal government borrowed to provide a floor under the economy during the Great Recession does not justify perpetual use of debt to fund routine federal expenses. It is no more progressive to fund Medicare with debt than to allow insurance companies to discharge medical bills by placing a lien on property belonging to the families of patients,” White wrote in Fortune.

He noted many progressives agree with President Obama’s characterization of income inequality as “the defining challenge of our generation.”

They should also acknowledge that this long-run challenge becomes greater when the federal government keeps piling on debt, White concluded.

Standard & Poor’s Ratings Services recently confirmed the AA+ rating of the U.S., a notch below the perfect AAA the nation had until the 2011 debt-ceiling debate, when U.S. lawmakers were unable to reach a deal to avoid defaulting on government debt until the last minute.

“Although both parties agree on the need to lower the government debt burden, the discussions about how this might be achieved are acrimonious. In the near term, including the run-up to the presidential elections in 2016, we do not expect entitlement or tax reform to advance,” S&P said.

“We believe that renewed debate over the debt ceiling could resume after the midterm elections in November 2014 under certain scenarios. While we expect the discussions about the debt ceiling to be ultimately resolved as they have been, we still see risks that these debates entail.”

The Week, a British magazine, provided some outside perspective on U.S. spending.

In a piece entitled “The United States Of Too Much Debt,” it noted the total level of U.S. federal, state and local government debt, coupled with that of corporations and overburdened individuals, stood at nearly $60 trillion earlier this month.

“Rising levels of debt are a double-edged sword. While they can spur more economic activity in the present, the more debt grows the more money consumers and businesses have to set aside to service their debts, potentially reducing future economic activity. So debt becomes dangerous to the economy when it grows faster than the economy itself, and debt levels growing faster than the economy can herald a recession,” The Week concluded.

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The gap between rich and poor could widen further if the federal government keeps shifting the costs of its current spending to the next generation.
income, inequality, debt, federal
Friday, 27 June 2014 11:28 AM
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