Rizzuto & Ortiz: Start Closing the Budget Deficit by Changing Foreign Aid from Grants to Loans

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DIMITAR DILKOFF/AFP via Getty Images

The federal debt just hit a record $34 trillion. It took the nation more than 200 years to record its first $1 trillion in debt and only three months to accrue its latest trillion.

A new Congressional spending deal will help slow the bleeding. But much more needs to be done. One first step to help reverse runaway debt is ending free handouts of taxpayer money to foreign countries via foreign aid grants, which have reached record levels in recent years.

The U.S. debt is now more than the GDPs of China, Germany, Japan, India, and the U.K. combined. President Biden has added $6 trillion to the debt since he took office and increased annual spending by a trillion over President Trump’s baseline.

And this is only the tip of the debt iceberg. The U.S. is also on the hook for another $151 trillion in unfunded pension and healthcare liabilities. If that total is taken into account, the national debt per taxpayer is nearly $1 million.

Things are only getting worse. In 2023, the federal deficit was $1.7 trillion — a record high outside the Covid years of 2020 and 2021 and a ridiculous number for an economy running at full capacity. In 2024, the deficit is on track to exceed $2 trillion. These deficits exceed those during the Great Recession, when the unemployment rate was 9% or higher for two-and-a-half years.

The impact of this debt burden is making itself felt right now in today’s world of high-interest rates. According to the Congressional Budget Office, annual interest on the debt is expected to exceed $1 trillion this decade, making debt payments the third largest source of federal spending after Social Security and Medicare. The U.S. is currently wasting $2 billion per day on interest payments, more than the annual budgets of major U.S. cities such as Tampa.

Congress recently announced a spending agreement that’s one step towards addressing the crisis. Discretionary spending in 2024 will fall to $1.59 trillion, below 2023 levels. Of particular note, the deal claws back another $10 billion from Democrats’ $40 billion expansion of the IRS.

Unfortunately, Congress’s next move may destroy this minor fiscal victory. It’s working on a $100 billion foreign aid spending deal that includes sending another $61 billion to Ukraine. This would bring the total amount spent on Ukraine to nearly $150 billion. That’s more than the annual budget of the U.S. Department of Transportation.

This funding is in addition to broad foreign aid to countries such as Canada and Mexico, which are in much better fiscal situations than the U.S. So why is the U.S. giving them free grants of taxpayer funds?

To get serious about the debt, instead of free handouts of taxpayer money, aid to longstanding and critical allies should be turned into interest-bearing loans, which the Trump administration proposed, so the U.S. fiscal situation isn’t further harmed.

Admittedly, this step amounts to only a drop in the debt bucket. But it would symbolize that legislators are serious about tackling our debt problems and finished with spending that doesn’t directly help Americans. It is just one of countless necessary bites that need to be taken from the nation’s debt sandwich.

The sad reality is that foreign aid is often wasted on corrupt politicians and dictators who use it to entrench their power and enrich their friends. Very little gets to the actual people. And even when it does, it can disrupt markets, making the intended targets worse off. For instance, food aid depresses local prices, hurting local farmers and economies. The CIA even has a term for the unintended consequences of foreign military assistance: “Blowback.”

On the present course, the U.S. risks a debt spiral. Congress must act now. Likely, the only way to truly restore fiscal sanity and curb the bipartisan spending addiction is a balanced budget amendment to the U.S. Constitution. But in the meantime, Congress can begin the long debt reduction journey by converting taxpayer-funded foreign aid from free grants to interest-bearing loans.

Lee Rizzuto is a former U.S. Consul General to Bermuda, and Alfredo Ortiz is president and CEO of Job Creators Network. 

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