This is the Cato Daily Podcast for Monday, February 5th, 2024.

I'm Caleb Brown.

One way to address federal debt could be as simple as devolving a lot of spending,

with massive transfers from feds to the states.

Cato's Chris Edwards offers some ways Congress can begin to stem rapidly growing federal

debt.

Chris, how do states keep their budgets in relative balance?

You draw this distinction between how the states and feds handle the issue of debt. how are states constrained in a way that the feds are not?

Well, there's a stark difference between federal debt and state and local government debt.

Federal debt at around $26 trillion now is eight times higher or larger

than all the debt of state and local governments combined in the United States, with

26 trillion for the feds

and about 3 trillion for all the state and local governments.

That's a pretty strange difference

given that politicians in general love to spend and

politicians love to deficit spend.

So why is there such a giant difference?

And the answer is that state governments

have a whole array of restraints on how much they can borrow.

States are generally required by their constitutions or by statute to balance their budgets every year.

They generally only borrow for capital investments.

General obligation debt, which is supported by taxes, generally has to be approved by voters.

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