What the National Debt Ceiling Extension Means for Your Family
You’ve probably heard about the national debt ceiling and its recent extension, but you might wonder what it has to do with your everyday life as a family. While it may seem like a distant matter, the national debt ceiling extension can have a significant impact on your family's financial well-being and future planning.
So what exactly is the national debt ceiling extension?
The national debt ceiling is a legal limit set on the amount of money the government can borrow to finance its operations and meet its financial obligations domestically and around the globe. When the government reaches this limit, it cannot borrow more money unless Congress raises or extends the country’s debt ceiling. If the ceiling isn’t raised and the United States can’t pay back its debts, the country’s global creditworthiness is affected as well as financial security abroad and at home.
The National Debt is currently at the tune of $32 trillion with no current substantive or reasonable plan of paying it back. Instead, Congress raised the national debt ceiling on June 3, 2023, which means the United States will not default on its loans. This is good news in one sense but bad news in another. It’s certainly important to understand how the extension of the debt ceiling can still affect the economy and your family.
Here’s how the national debt ceiling extension can affect the economy, and your family, and what you can do to mitigate the impacts.
Access to Credit and Loans
You likely rely on credit and loans for various purposes, such as buying a home, financing education, or handling unexpected expenses. When the national debt ceiling is extended, it can create uncertainty in the financial markets, leading to higher interest rates and tighter lending conditions. This means that securing affordable credit and loans for major life milestones or managing financial emergencies may become more challenging.
One of the ways you can mitigate this impact could be to consider starting a business or a side hustle, so you can create multiple revenue streams instead of just being reliant on one, and leverage access to business credit, which can be more accessible and less expensive than using personal credit, even in tight lending markets.
Consumer Confidence and Spending Habits
Your family's financial health may be closely tied to the state of the external economy. When there is uncertainty surrounding the national debt ceiling, coupled with high inflation, it can affect consumer confidence and spending habits. As people become concerned about the government's ability to manage its debt, they may tighten their spending, leading to decreased demand for certain goods and services. This can have a direct impact on your job stability, income growth, and even your ability to save and invest for the future.
One way to mitigate this risk is to begin to separate the well-being of your family from the greater economy by creating your own local economy, wherever possible. If that feels far afield, consider ways that you can begin to generate income locally by making a product that friends and neighbors would want and need, or providing a side service within your local community.
If you decide to go this route, contact us to discuss options to create your side business in the most tax-advantaged and liability protected manner.
Government Programs and Support
Government programs and support play a crucial role in many families’ lives, especially during challenging times. However, when the national debt ceiling is extended, it can put pressure on government budgets, leading to potential cuts or delays in funding for essential programs and services. This may directly affect your access to healthcare, education, housing assistance, and other forms of support that your family relies on.
If you have a child or family member with special needs or an elderly family member you are supporting this may affect you even more. Now is the time to get into closer relationship with your nuclear and extended family, marshall all the family resources, and get into conversation around how you can use all the family resources to support all of the children and elders in the best way possible. If you need help speaking to your parents, or considering how best to ensure a lifetime of support for a child with special needs, give us a call and let’s strategize together.
Tax and Fiscal Policies
Changes in tax and fiscal policies, often influenced by the national debt, can have a significant impact on your family's finances. As the government seeks ways to manage the national debt, it may consider adjustments to tax rates, deductions, or credits. These changes can directly affect your take-home income, savings, and overall financial planning. Understanding and adapting to these shifts is crucial for effectively managing your family's budget and long-term wealth and legacy.
You can be fairly certain tax rates will go up to support the debt extension. And, the middle class, especially those who do not know how to mitigate tax impacts with legal entity structuring, are likely to bear the burden. If you want to leverage the tax-advantaged strategies of the wealthy to keep more money in your local community, and in your family’s bank account, contact us to discuss options.
The Next Major U.S. Economic Depression Will Probably Be in Our Lifetimes
As Austin Rogers carefully explains, there is compelling and overwhelming evidence and research that proves that excessive debt by the government, "above a certain threshold of GDP, begins to drag down economic growth" and the "US national debt is now well above that threshold." This means that anyone with a bare minimum of education in how economics works will understand that the U.S. economy is headed for one or more substantial economic downturns in our lifetimes. As Rogers concludes, "In the coming decades, the US economy will be asked to do the impossible: grow faster even while the government extracts more of its resources."
Economist Walter E. Williams summed up the problem 10 years ago, and it has only gotten worse:
“I believe our nation is rapidly approaching our last chance to do something about runaway government before we face the type of economic turmoil seen in Greece and other European nations. Tax revenue has remained constant for the past 50 years, averaging about 18 percent of gross domestic product. During that interval, federal spending has risen from less than 20 percent to more than 25 percent of GDP. What accounts for this growth in federal spending? The liberals like to blame national defense, but in 1962, national defense expenditures were 50 percent of the federal budget; today they are 19 percent. What accounts for most federal spending is the set of programs euphemistically called entitlements. In 1962, entitlement spending was 31 percent of the federal budget; today it is 62 percent. Medicare, Medicaid and Social Security alone take up 44 percent of the federal budget, and worse than that, it's those expenditures that are the most rapidly growing spending areas. Our federal debt and deficits are unsustainable and are driven by programs under which Congress takes the earnings of one American to give to another, or entitlements. How long can Congress take in $200 billion in revenue per month and spend $360 billion per month? That means roughly 40 cents of every federal dollar spent has to be borrowed. The undeniable fact of business is that a greater number of people are living off government welfare programs than are paying taxes. That's what's driving Europe's economic problems, and it's what's driving ours.”
Regardless of whether you believe federal spending, welfare, and entitlements are a good thing, anyone who can do the math can see that unsustainable spending will eventually make our paying of entitlement benefits at the same rate impossible. For most Americans under the age of 60, you should not plan on receiving any Social Security benefits as a part of your future financial planning.
This is not about blaming one economic philosophy or political party for unsustainable borrowing and spending. This is about effective legal and financial planning. The time has come for local community building, by both families and businesses, and sustainable living designed to weather future economic storms. A major part of local community building is family wealth building. More and more responsible adults need to take serious looks at their financial future and security, and design a plan for long term family wealth building in secure foundations that can last and weather large economic downturns. The time to design those long term family plans is right now.
Ongoing Guidance for Your Family
We understand that managing your family's financial and legal well-being can feel overwhelming, especially when it’s hard to know how changes in the law and the financial landscape will affect you. But remember, you don't have to face these challenges alone. As a Personal Family Lawyer® law firm, our mission is to provide you with the support and guidance you need as you navigate changes in the law so you can build a life you love while protecting and preserving your wealth and legacy for the next generation.
While we aren’t financial advisors, we can connect you with a trusted network of professionals and work alongside your financial and tax advisors to make sure your estate plan coordinates with your overall financial plan and protects your family’s wishes and wealth no matter what the future brings.
Ready to protect your family’s wealth and preserve your assets and your story for generations to come? We invite you to schedule a free 15-minute call to learn more.
This article is a service of J.A.A. Purves, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session.