Ten inconvenient truths about the national debt
1.) The amount by which the public debt — the portion of the national debt not borrowed by the U.S. government from funds it administers — has increased since President Obama took office is unprecedented, not politics as usual: more than $4.75 trillion (more than 75%), according to the Treasury Department. If the president’s second-term budget is implemented, he will end up (according to the Congressional Budget Office) increasing the public debt by $8.9 trillion. That exceeds the public debt incurred by all previous presidents combined — by more than $2.6 trillion.
2.) Large as the public debt is, it doesn’t include amounts the government has promised to pay but lacks the funds to pay. For example, the Social Security and Medicare trustees have estimated that we need more than $63 trillion right now to make promised payments for Social Security and Medicare benefits not covered by current Social Security and Medicare taxes.
3.) The government can’t keep incurring debt without consequence. High debt slows economic growth (meaning fewer jobs and less income), according to one study by Carmen Reinhart and Kenneth Rogoff and a second study by Manmohan Kumar and Jaejoon Woo (refuting the claim that it is slow growth that causes higher public debt and not vice versa).
4.) It’s not like the government is skimping on spending. The Office of Management and Budget (OMB) has estimated that this year the federal government will spend 24.3 cents out of every dollar of the value of all final goods we produce and services we provide (add state and local expenditures and that figure increases to 44.2 cents).
5.) Interest payments on the debt are skyrocketing. The CBO has estimated that the president’s proposals will more than triple interest on the public debt from $237 billion in 2013 to $743 billion in 2022 (more than the Department of Defense is spending on military programs and more than seven times what the Department of Education is spending). That money will enrich other countries (the Treasury Department estimates that almost half of the debt is held by foreign investors).
6.) There aren’t enough rich people to balance the budget on their backs. Ending President Bush’s income and estate tax cuts for the “rich” (defined as individuals with taxable income exceeding $200,000 and couples with taxable income exceeding $250,000) would (according to the OMB) reduce the 2013 deficit by less than 5% ($46.6 billion).
7.) Raising taxes, even if just on the rich, reduces economic growth. Christina Romer (former chair of President Obama’s Council of Economic Advisers) and David Romer found that “tax increases appear to have a very large, sustained, and highly significant negative impact on output.” Remember when Congress decided to soak the rich by taxing yacht purchases? That tax was repealed because of its unintended consequences: the rich stopped buying yachts built in the United States, and tens of thousands of blue-collar workers lost their jobs.
8.) Other countries’ experiences show that the best way to correct debt problems is to reduce government spending, not increase taxes. A Goldman Sachs Global Economics study found that governments that reduce spending correct fiscal imbalances yet still typically boost economic growth. By contrast, governments that rely on tax increases typically fail to correct fiscal imbalances and damage economic growth.
9.) Printing money or otherwise deliberately creating inflation to make it easier to pay off our debt would reduce everyone’s standard of living by reducing the amount of goods and services that we can purchase with our income and savings. Inflation is a hidden tax that hits the poor particularly hard.
10.) When the government spends more money than it takes in, we’re selfishly forcing our children and grandchildren to reduce their standard of living so that we can continue to live beyond our means.
David Gibberman, a lawyer, writes about legal and financial matters for professionals, college students, and the general public.