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A Voice from Fly-Over Country
May 4, 2013

Why Does the Government Borrow Money?
by Robert L. Hale
fitzgerald griffin foundation

MINOT, NORTH DAKOTA — Why does the government have to borrow money? Doesn't it have taxing power? Shouldn't it be able to raise the money it spends as it spends it?

Of course it should, and of course it can. So, why doesn't it?

It is time for this question to become the focus of a national debate on federal tax and spending policy.

Congress does not impose the taxes necessary to cover the spending because, if it did, the American taxpayers would revolt. For more than 50 years, the people we have elected and sent to Congress have been borrowing heavily to hide the truth of their irresponsible spending.

If the income tax burden for 2010 been raised so that the federal budget were balanced, the tax rate on those paying income taxes would have exceeded 78 percent. This would be in addition to the 7.65 percent that is taken out of earnings for FICA. The tax rate necessary to balance Congress' spending in 2010 would have been 86 percent. Taxpayers would have kept only 14 percent of what they earned.

In 2011 and 2012, if taxes had equaled expenditures, even less would have been left in taxpayers' pockets. This is why the borrowing in each of the last six years has exceeded $1 trillion — and is projected to continue for the foreseeable future.    

For more than 50 years, the people we have elected and sent to Congress have been borrowing heavily to hide the truth of their irresponsible spending.

There is a fundamental problem. Fewer and fewer lenders are willing to lend money to the United States. The Medicare trust fund is empty, as is the Social Security trust fund. The money that should be there has been replaced with government IOUs.

The ability to tap China, Japan, and Saudi Arabia is about to come to an end. Inflating the money supply, another favorite trick, is not as easy as it once was. Our creditors are not fools. They have warned the U.S. to not do so. For the first time in American history, foreign countries are dictating to America what we had better not do.

This is what the "fiscal cliff" is all about. While the majority in Congress has no clue what is going on with America's financial management, President Obama does. He understands the only place to get money when the lenders say no is to take it from those who actually create wealth. That is why he forced John Boehner to fold and allow massive tax hikes to be imposed on 71 percent of the Americans who actually pay federal taxes (fewer than half of Americans do so).

Obama and the Democratic leaders know that the recent agreement will not sustain their spending addiction. They realize that even higher taxes must be imposed to continue to fund their mindless spending, and they fully intend to impose them.

Evidently, the President and the Democratic leaders believe there is no limit on how high they can raise taxes. Their ideology tells them that those who create wealth will simply work harder and meekly hand over a larger share of what they earn. History tells a different story, and what is happening today in Western Europe confirms the lessons of history. The joy ride is over. The reality of excessive taxes is the hallmark of irresponsible, deluded, and narcissistic leaders. As with the law of gravity, you can deny it and try to ignore it, but you cannot escape it.

Republican leaders are acting like deer caught in the headlights. They do not have a clue what is going on. They are unable or unwilling to acknowledge the dysfunction in Congress, let alone plan a course of action to resolve it.

The President is intentionally leading our country into the abyss. He is abetted by both the Democratic and Republican leadership. Those in Congress attempting to change direction and warn us are called ideologues and extremists, and their warnings are dismissed.

The media that once led rational and meaningful debate on serious public issues no longer does so. The mainstream media has become a partner of the political elite, intentionally deceiving and misleading the public. Unless this changes, the natural consequences will take us where every other similarly led nation has gone -- onto the ash heap.

Borrowing is the surest road to bankruptcy. For individuals, it is just a financial reckoning. For a nation, however, it is something much worse — revolt, upheaval, and destruction. Be prepared; the day of reckoning may be just around the corner.

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A Voice from Fly-Over Country is copyright © 2013 by Robert L. Hale and the Fitzgerald Griffin Foundation. All rights reserved.

Robert L. Hale received his J.D. in law from Gonzaga University Law School in Spokane, Washington. He is founder and director of a non-profit public interest law firm. For more than three decades he has been involved in drafting proposed laws and counseling elected officials in ways to remove burdensome and unnecessary rules and regulations.

See a complete biographical sketch.

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