Sept. 18 is an historic day in Scotland when the country’s three-century partnership with England is put to a vote of the people. While the outcome of the vote is still anybody’s guess (polls show the referendum too close to call), speculation on the short- and long-term implications of the decision abounds.
Some European countries are already expressing concern that the “independence contagion” (as one article put it) could spread to other parts of the continent—especially if Scotland’s referendum is successful. Questions also remain regarding Scotland’s position in the European Union (EU) should it be successful in achieving full independence in 2016 (the anticipated date). While most in Scotland hope for expedited acceptance, others are predicting a more drawn-out membership application process that could potentially take several years.
One under-reported element of this referendum is the allocation of the UK’s sovereign debt should Scotland gain independence. While the general consensus is that Scotland would be required to pay its “fair share,” the UK Treasury has assured the public (and investors) that it will “in all circumstances” take responsibility for UK government debt. Scotland’s first minister has characterized this promise as putting Scotland in “an extremely strong negotiating position.”
The notion of divvying up sovereign debt got my mental calculator running. I had to see how such an apportionment might apply to the state of Idaho. While the concept of any U.S. state seeking independence in the modern era is purely speculative (with the possible exception of Texas), the calculation of debt is an alarming reality.
As of this writing, the U.S. national debt stands at $17.75 trillion; the U.S. population is 319 million. That equals a per-person debt of $55,643. Based on Idaho’s population of 1,612,136 (2013 estimate), Idaho’s “fair share” of the national debt would be $89.7 billion.
If Idaho attempted to independently pay off its “fair share” of the national debt during a 50-year period at a low interest rate of just .5 percent, the state would have to make annual payments of just more than $2 billion. That payment alone would consume nearly three-quarters of the state’s general fund.
Assuming Idaho was intending to fully go it alone in this hypothetical, the state would also have to forgo the $2.35 billion in federal funds that it annually appropriates. While it’s true that Idahoans would not be paying federal taxes in this scenario, the enormity of Idaho’s reliance on federal dollars is still staggering.
One final number for you: If, under current conditions, Idaho were to stop accepting federal dollars, Idaho could fairly claim to have paid off its share of the federal debt by 2050. Something to think about.