Commentary
As the debt ceiling debate looms, U.S. national security may be at risk while welfare is safe.
The U.S. Constitution states that the purpose of the government is “to establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.”
Achieving these goals requires government spending. This spending is supposed to occur within the federal budget, largely funded by taxes. When government spending exceeds its revenue, it creates debt by selling bonds.
With the U.S. debt already standing at
$31.46 trillion, many lawmakers oppose raising the debt ceiling as a way of reining in government spending. They hope to eliminate the deficit, so the nation can begin to look for ways to pay off the debt. But like many polarizing political debates, there is no simple fix to the looming debt ceiling issue. And the fallout could jeopardize national security.
The federal budget comprises
two types of spending, discretionary and non-discretionary. The discretionary component can be adjusted on an annual basis. This includes spending on various government agencies and programs, including national defense. Non-discretionary spending, by contrast, is not adjusted annually and is stipulated by law. This includes Social Security, Medicare, and interest payments on the national debt.
The debt ceiling does not directly affect non-discretionary spending, but because non-discretionary spending is set by law, it will be prioritized. This means that if the debt ceiling is not raised, whatever funds the government has available will go to these programs at the expense of discretionary programs like national defense. This will directly impact the military’s readiness, training, and modernization.
National defense accounts for
about 12 percent of total government spending, which is on par with Medicaid and less than Income Security (which accounts for 14 percent). Income Security covers retirement for government workers, as well as disability and unemployment insurance for government and non-government workers. Welfare is also part of Income Security, including programs like
child tax credits, as well as housing, income, and food assistance. Income Security is considered mandatory (non-discretionary) spending, while defense is considered discretionary. If the United States misses the debt ceiling, money will be taken away from defense and shifted to welfare programs.
In addition to having to shift money away from defense, missing the debt ceiling this year would have a permanent, negative impact on national security. If Congress fails to raise the debt ceiling, the United States could default on its debts. This would cause a downgrading of U.S. creditworthiness and an increase in the interest rate that the U.S. government must pay when it borrows.
Currently, the U.S. government has an excellent credit rating, so the cost of borrowing is low. An inability to borrow cheaply would make it difficult for the United States to continue to fund national security and intelligence programs. It would also put the country at greater risk of being unable to raise sufficient capital if a war broke out.
Currently, U.S. government 10-year T-bills have a Fitch rating of AAA and are paying
3.53 percent interest. The United States enjoys such a high credit rating because government debt is backed by the
full faith and credit of the U.S. government and the ability to tax the American public. The United States has never defaulted on a debt. Consequently, U.S. government bonds are considered risk free. This allows the U.S. government to borrow money very cheaply.
By contrast, Argentina’s government faces liquidity problems and a history of defaults. As a result, Argentine government bonds have a Fitch rating of
CCC. The likelihood of a default is
estimated at 17.18 percent. Because investors must be compensated for that risk, Argentine government debt pays 26 percent interest. If the United States defaults, the borrowing rate for the U.S. government would not increase to 26 percent, but it would increase.
Wars are funded with debt. When the United States goes to war, bonds are sold, and the proceeds are used to recruit, train, and pay soldiers, as well as purchase weapons, vehicles, and other military hardware. The combined U.S. debt for the wars in Iraq and Afghanistan is
$2.2 trillion. This number represents only the upfront costs, not the interest. This year, the government will pay a
total of $395.5 billion in interest. This massive number represents the interest on government debt, which has grown every year for the past 20 years, but at one of the lowest interest rates in the world.
If the United States defaults on its debts, the interest rate will increase, causing future interest payments to increase, necessitating either an increase in taxes or a cut in defense spending. The United States will additionally find it even more expensive to fund the next war by issuing bonds.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
