Debt as a percent of GDP at its highest levels since WWII
from Rep. Paul Opsommer
State Rep. Paul Opsommer thanked his colleagues in the state House of Representatives for approving his resolution calling on Congress to pass a Constitutional amendment requiring an annual balanced budget. House Concurrent Resolution 6 would encourage our nation’s leaders to fully address budget issues and make the same tough decisions Michigan needs to as it puts its financial house in order.
“Reckless spending in Washington D.C. is putting both Michigan’s budget and our nation’s future at risk,” said Opsommer, R-DeWitt. “The reality is that there is no such thing as free money, and Congress needs to do the responsible thing and propose an amendment for ratification by the states that will stabilize our nation’s spending and not burden our children with levels of debt they will never be able to pay off.”
As a state Michigan already requires a balanced budget, ensuring that it must put its finances in order every year with necessary changes and structural reforms. The federal government currently has no similar obligation and as a result has seen its debt as a percent of gross domestic product rise to levels not see in our country since World War II.
“Our national debt now breaks down to nearly $46,000 per U.S. resident,” Opsommer said. “Borrowing additional funds from foreign nations or printing additional money only makes an eventual day of reckoning that much worse. We must confront this issue head on.”
How the federal deficit impacts Michigan
By State Representative Paul Opsommer
A major credit rating firm recently changed its outlook on US Treasury securities from “stable” to “negative” because of concerns over our mounting federal debt. While the United States still maintains its AAA bond rating, the fact that our debt as a percentage of gross domestic product is at its highest levels since World War II can no longer be swept under the rug. Federal debt now stands at more than $14 trillion dollars, very close to the current limit that has been approved for us to borrow. If the debt ceiling is not raised there could be defaults as soon as July.
This is an obvious cause for concern, because continually raising our debt ceiling has allowed our country to get by without a balanced budget amendment for far too long. Michigan on the other hand does have a balanced budget requirement, which makes the impact of the federal deficit upon our budget even more severe.
For example, well over a third of our budget comes from federal funds, with recent trends increasing and approaching a full 40 percent. While much of this is dedicated money, in other cases Michigan has to be able to both “match” a portion of the federal money with Michigan tax dollars, and then spend it in the areas the federal government chooses or see it taken away.
Too many view this funding as “free money”, money that we have now become dependent on. But it is still money that we are all ultimately accountable for, and it increasingly ties up our funds, misdirects our priorities, and puts pressure on states to raise taxes to be able to afford to take it. Without a balanced budget requirement the federal government can give states more and more money by simply printing or borrowing it, while Michigan has fewer options and eventually has to raise taxes in order to match and receive it.
This is not sustainable for Michigan, and ultimately can’t be sustained by Washington. As the recent downgrade shows there are limits to how much money can be printed and borrowed, and without the federal government adopting a balanced budget amendment we will eventually see hyperinflation or defaults.
The federal deficit also was a factor in determining why Michigan simply can’t bail out local municipalities or school systems that are facing bankruptcy. Beyond the political debate over whether people want to see their tax dollars go towards bailing out the financial mistakes made by other communities, I can’t erase the debts of those communities without also putting Michigan’s overall budget at substantial risk. Federal intervention would be unlikely, because the money is not there and it ultimately would just put off an even worse day of reckoning.
Simply put, it will be extremely difficult to get Michigan’s long term budget under control until the federal government faces reality and adopts a balanced budget amendment of its own. It is in all of our best interests in Michigan to recognize how federal runaway spending is not the answer to our state’s budget problems and that we need to come up with local solutions of our own. The decisions will be painful, especially in the short term, but the alternative of staying on the current path of increasing debt and wishful thinking gravely endangers our future.