A Free-Market Approach to Reducing the National Debt

Much ink has been spilled and much hot air has gusted about concerning our expanding national debt. Everyone agrees that the debt is a bad thing; it makes us beholden to large holders of Treasuries such as China or Japan, it drives up the inflation rate, it takes more and more of our budget just to service existing debt, it makes borrowing more expensive, it weakens the dollar, et cetera.

With all the talk, not much has actually been done about paying it down. To do so requires some combination of revenue increases and spending decreases (though given the government's unprecedented revenue growth at all levels, many would say our main problem is with spending). Raising taxes would stifle the economy and be politically unpopular, and lowering spending would leave the old and the poor hanging, which is even more politically unpopular. That something needs to be done anyway is not enough for our Congress, which would rather spend its time on "cultural" issues of negligible fiscal significance than actually risk angering the interest groups.

So the debt continues to grow. And increasing taxes are hardly a solution, given that additional revenues would likely be used for more programs and not to plug the hole in our budget. At any rate, there is no guarantee that Congress would use additional revenues the way we want them to.

Is there anything we citizens can do? Actually, yes. I just learned today that the Bureau of the Public Debt has a program whereby individuals can donate money to the Treasury for the express purpose of retiring public debt. Apparently these donations are tax-deductible, though this is not immediately apparent from the BPD link.

People have a meaningful choice between sending money into the general revenues to pay for who-knows-what, or making a small sacrifice to devote money exclusively to paying down the national debt—while denying tax revenue to the budget. Donating towards paying down the debt could become not only an act of civic patriotism, but a powerful protest against Washington budget politics at the same time. Best of all, it is totally voluntary.

What's not to like?

Yes, Congress can easily borrow more money to make up for the shortfall, but since donations would be tax-deductible and not credited to taxes entirely, the total debt would go down more than the size of the shortfall. Moreover, if such donations became widespread enough it would be a stunning condemnation of our present budgeting culture, which may encourage a new crop of enterprisng politicans intent on cleaning house.

And to tell the truth, even if Congress would not reform in the face of such humiliation, we no longer have the luxury of waiting for them to act. If it takes concerted action by the people ourselves to get this country out of debt, then so be it. I am not convinced that a war with China is inevitable, but just the chance of it happening raises the spectre of economic warfare in which China drops the Treasury Bomb and destroys the dollar. We have a civic duty to protect this country from that threat, and the many other corrosive effects of a national debt.