Every year, there are natural disasters and emergencies in the nation. Whether it’s California wildfires, hurricanes in Georgia and Florida, volcanic eruptions in Hawaii, floods in Nebraska and Oregon, or, most recently a global pandemic, Congress has pumped out trillions of dollars in disaster relief to states, putting the nation even further in debt and increasing annual budget deficits.
With the massive $5 trillion response to the COVID-19 pandemic, the nation's debt has sky-rocketted to $28.1 trillion as of April 2021. The budget deficit is projected to be $2.3 trillion in the current fiscal year. This is 16 percent of the nation’s economy (or gross domestic product, GDP). To give some perspective, the previous record for highest deficit since World War II had been after the 2008 financial crisis, and that was nine percent of GDP.
As NTU has noted before, increase debt causes many problems:
Interest eats up more productive uses for federal revenue: According to [nonpartisan Congressional Budget Office, or] CBO, the federal government’s interest payments on the debt will nearly double over the next decade, rising from $338 billion in FY 2020 to $664 billion in FY 2030. As policymakers continue to pass laws that raise spending, reduce revenues, raise deficits, and/or raise the debt level, mandatory interest payments will eat up a larger and larger portion of the annual revenues coming into the federal government. The more the government needs to devote to interest payments, the less it has for growing mandatory spending needs and rising discretionary spending demands. It will also reduce policymakers’ slack to respond to disasters (like hurricanes, wildfires, and tornadoes) and public health crises (like COVID-19).
Growing debt reduces economic output: As CBO put it all the way back in 2013, “[i]ncreased borrowing by the federal government would eventually reduce private investment in productive capital, because the portion of total savings used to buy government securities would not be available to finance private investment. The result would be a smaller stock of capital and lower output and income in the long run than would otherwise be the case.” More recent analysis has confirmed these concerns are still relevant.
The debt is a national security threat: Military and national security experts like former Director of National Intelligence Dan Coats and former Joint Chiefs of Staff Chairman Admiral Mike Mullen agree: the debt is a national security threat in both the short and the long term. As Admiral Mullen put it in 2011: “...I think the [worse] situation that we are in as a country fiscally, the likelihood of the resources made available for national security requirements continue to go down is very high.”
In the past ten years, Congress has spent $460 billion on disaster relief (not including COVID spending). As Congress pumps more and more dollars into disaster relief, which is often very much needed, they should also consider starting a federal Rainy Day Fund, putting money into that Fund ahead of time so that when, not if, another disaster comes, the country is financially ready for it. Most states already have Rainy Day Funds.
Fortunately, Sen. Mike Braun (R-IN) just proposed a bill to start a Federal Rainy Day Fund. This bill would put the nation in a much better financial position to deal with disasters and emergencies in the future. It would also spur a discussion on what counts as emergency spending. In past COVID relief bills and proposals, there were plenty of provisions that had little to do with the emergency at hand. Just one example is the $86 billion in the American Rescue Plan that went to bail out failing multiemployer pension plans.
The bill proposed by Sen. Braun would more clearly define what constitutes a federal emergency and use that to establish parameters on emergency spending. Sen. Braun’s bill would be funded by devoting two percent of the amount of the previous year’s non-emergency discretionary spending to the Rainy Day Fund, and would also require the fund to be used completely before turning to other sources.
It is time for Congress to set up the Rainy Day Fund Sen. Braun proposed, so as to try and dig our nation out of the debt associated with disasters that occur in the U.S. and better prepare our country for future disaster relief needs.