Good Thing Federal Bucks Don't Stop


Washington. -- In politics, a zealously presented image is often more powerful than reality. Louis Goldstein's recent Opinion * Commentary article, "The Federal Buck Doesn't Stop Anywhere Anymore," is a prime example of presenting a political issue so one-sidedly one marvels at how it could develop so in a society where leaders face election and a free press exists.

Mr. Goldstein claims that interest payments on the U.S. national debt are "tax dollars into a black hole" that have resulted in the federal government denying much-needed aid to the states. The reality is that federal aid to the states has been a major factor in increasing the federal deficit. From 1970 to 1990, the federal deficit rose by $2.1 trillion, with aid to the states totaling $1.7 trillion, more than 70 percent of the increase in the national debt. What Mr. Goldstein also failed to point out is that while the federal government was running deficits yearly, much of the $1.7 trillion went to states with budget surpluses.

Over the next five years, aid from Washington to the states is projected to be twice the total budget deficit; merely halving aid to states would thus balance the federal budget. While Mr. Goldstein claims that rather than a financial "lifeline, Uncle Sam has tossed us a bag of bricks," money from Washington to state and local governments by 1996 will have doubled form the start of President Bush's first term.

Mr. Goldstein also misses on what happens to interest payments on the national debt, quipping "Take the interest on this year's $318 billion deficit and just ask . . . how many . . . homes . . . how many children . . . educat[ed] . . . how many waterways could it clean up?" The answer is these payments will result in all of the above.

Contrary to Mr. Goldstein's statement, interest on the national debt does not go down a "black hole," it goes to those who bought Treasury bonds: financial institutions, schools, individuals, even state and local governments. From here, the $318 billion goes to pay for housing, education, etc.

It is also omitted that the U.S. government absorbed so much in debt to pay for items such as housing, education and environmental programs. The question that should be asked is how much housing would not have been built, how much in education cut, or how many environmental programs not funded if the United States had not been willing to engage in massive deficit spending. An example of this is that from 1980 to 1988 total outlays on housing subsidies of low-income households more than doubled, from $5.7 to $13.8 billion, while the families receiving this aid increased from 3.3 million to 4.4 million.

If there are any state officials who should be thankful that Washington incurs debt to finance its activities, it should be those in Maryland, which benefits more from federal spending than any other state. Federal spending allows for Maryland to keep its high bond rating, borrow at low cost and enjoy prosperity. The General Assembly scrambling in late June to raise taxes in order for the state to qualify for $312 million in federal highway money demonstrates Maryland's reliance on Washington.

Although Mr. Goldstein says "You don't need a Ph.D. in economics to know that massive federal borrowing drives up interest reates for businesses and governments alike," he fails to point out that interest rates and inflation are both lower now than during the Carter administration, when the national debt was less than one-quarter its present size. Moreover, federal deficit spending helps Maryland's economy greatly, which allows the state to borrow at lower rates than it could otherwise. And in the most demanding rest of that market, the bonds of the U.S. government are still the most secure investment and pay lower rates due to this stability.

Mr. Goldstein concludes with the query, "Will the next dTC generation struggle under a mountain of debt creased by the federal government?" According to Professor Marshall Robinson in his Harvard Business Review article, "Our Not So Troubling Debts and Deficits," our "children will pay, as we have, from the proceeds of the rich economy they inherit."

Mr. Goldstein has done more than "bite the hand that feeds him" in criticizing federal aid and deficit spending, he has also turned a blind eye to rather than look at the entire issue.

Jonathan Paul Yates is a former congressional staffer.

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