Deficits of $1 trillion a year for eight years add up to a lot of interest. Consumers understand that when you borrow money, the lender will require you to pay it back it with interest. Washington doesn’t seem to get that idea.
Raising the debt limit means current debt is not being repaid while new debt is being added. No one is discussing this now, but experts believe President Barack Obama will leave a gift to the American people of at least $10 trillion in new debt when he leaves office.
Interest costs on federal debt averaged 2.52 percent at the end of 2012. If rates rise, the costs will grow, but using that figure shows how big the hole is that Washington insists on digging. Annual interest payments will top $25 billion per trillion of new debt, or $250 billion a year in debt servicing costs to pay for all the investment that Obama insists will make thing better.
From a business perspective, the argument for new debt looks weak.
If the economy grows by 2 percent a year, increased interest costs will require a 30 percent increase in taxes unless government spending cuts can be found. Slower growth would make the tax bill even higher.
Current fiscal policy is creating problems for the next president no matter who it is. In order to protect the children, it is time to cut spending and reduce borrowing. Otherwise, the children attending White House ceremonies today face federal tax rates of 40 to 50 percent when they graduate college.
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