Colorado and U.S. are still headed for a debt disaster

At this time, it’s customary to look back at the top stories of the last year. But it’s more instructive to see the year’s progression as an arrow of where we’re going, rather than where we’ve been.

If we read the tea leaves and search the flight patterns of birds for meaning, we see the horizon holds the sort of debt that Dickens popularized in his novel David Copperfield, “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

This pretty much sums up the state of fiscal morbidity both at the national and Colorado level.  The two governments are now so fiscally intertwined that we are much more likely to be viewed as a national government with some quaint provinces as opposed to the vibrant republic imagined by our founders.

As the federal government jets downward into deeper debt, it’s hard to not drag the states with it in one way or another, as they have become increasingly and disappointingly tied to federal largesse and dominated by its sometimes constitutionally questionable regulation.

While there’s plenty of blame to go around, and in recent times the Bush administration clearly swerved the federal budget Hummer off the road, the Obama administration has placed the brick on the accelerator and has been swilling martinis in the backseat as the beast speeds toward the financial Dead Horse Point.

I put some blame on Richard Nixon for really getting states into the block grant program from the federal government. This idea moves taxes from citizens of the states back to Washington, where stout nylon ropes are attached and securely fastened to bureaucrats prior to the cash being returned to the states for “their” use.

Now that recalcitrant rubes in the states have been squawking about taxes, the Obama administration will probably get permission to raise the national borrowing level a scheduled $1.2 trillion, which continues the path of our interest payments on debt exceeding the gross national product by 2050.

Mark Steyn, in his marvelous book, “After America,” points out that within the next decade, we will be spending more on servicing our national debt than national defense. That means we will be paying more in debt interest than, China, Britain, France, Russia, Japan, Germany and about 10 others combined spend on their military.

The good news for China, as Steyn points out, is if the Chinese continue to buy American debt at their current rate, in a just a few short years our interest payments will be covering the entire cost of their armed forces.

This doesn’t bode well for states like Colorado, which are busy borrowing borrowed money from the federal government. For instance, as of Dec. 23, the state of Colorado owed the federal government $328 million, borrowed to meet unemployment insurance obligations. As with many loans, there’s interest due that runs into the millions of dollars without touching the principal. In fiscal year 2012, the interest alone is anticipated to be $2.8 million.

Colorado’s solution is to raise unemployment insurance fees to help pay this spiraling debt, which jumps whenever the federal government increases the length of time for unemployment qualification and requires the states to pay for it. 

Moreover, as we read in The Daily Sentinel this week, federal government mandates heavily impact local school expenditures, in some instances seemingly requiring the school district to spend more to qualify to get less back.

Adding insult to injury, we have a district court judge in Denver who declared the state’s school finance system unconstitutional — which should lead to some interesting discussion at the Legislature, especially if the Supreme Court doesn’t completely overrule the decision. If it doesn’t, money is going to have to be found somewhere. And by somewhere, I mean your pocket.

In the midst of this, there is the one guiding statistic: growth is happening in low-tax, low-regulation states. Columnist Michael Barone pointed out that 35 percent of the nation’s growth occurred in the nine states without income taxes, while they only accounted for 19 percent of the population. Colorado is not one of them but wouldn’t it be nice if that was our future?

Rick Wagner offers more thoughts on politics at his blog, the War on Wrong.


COMMENTS

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Rick, you failed to mention that those states without income taxes have really really high real estate taxes. I know something about this—I pay three times the real estate taxes on a house that I own in South Dakota compared with what I pay on a newer, more modern, and larger house in Colorado. Be careful what you wish for.

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