We're Leaving Our Children a Shameful Legacy
Q: We all know that the soaring federal budget deficit is a huge economic challenge for the U.S. But what about the ethics of it?
A cardinal rule of ethical living is that you take responsibility for your own choices and you don't place the burden of them on others. By that measure, it is highly unethical of today's voters and their elected representatives to allow the federal government to grossly overspend current revenues -- year after year, in good times and bad.
Sure, that debt can probably be rolled over forever, with the principal being reborrowed through countless new Treasury-bond issues. But as the federal debt mounts, the burden of our profligacy will fall on future taxpayers: our children and their children. That's unethical.
Current tax revenue paid out in interest on past deficits -- now about 7% of the federal budget and rising -- is revenue not available for the societal needs of future generations. A rising share of those interest payments (today about half) is paid to foreign creditors, so it's not even recycled in our own economy. And we can expect that creditors will demand higher interest rates over time.
There are some who believe that it is acceptable -- indeed, highly ethical -- to run budget deficits in times of recession, to relieve the distress of the unemployed and stimulate the economy. I'll accept that -- as long as the budget is brought back into balance, ideally by spending cuts, when strong growth resumes. Even better, Washington should run surpluses in boom times and bank them for a rainy day -- as some states do -- to help weather the next recession.
Reality check: In the past 50 years, Congress has balanced the federal budget only six times -- in 1960, 1969, 1998, 1999, 2000 and 2001 (and the last four needed an accounting boost from Social Security surpluses).
The budget went back into the red after the economy faltered because of the dot-com bust of 2000 and in the aftermath of 9/11. But even with anti-recession tax cuts and heavy military spending, the deficit stayed under 4% of gross domestic product until the Great Recession pushed it to $1.3 trillion -- more than 10% of GDP -- and it continues to soar.
Send your own money-and-ethics question to Editor in Chief Knight Kiplinger.