Drowning In Debt?
Every year when the Presidentís State of the Union Addresscomes around, regardless of who that president is or what party he represents, I marvel at the hundreds of billions of dollars that are thrown around like play money: presented, promised and pledged. I also marvel at the publicís inability to realize or react to the fact that this cash simply does not exist! As a nation, we are literally making charges against a great big credit card with an ever increasing credit limit that is out of control. The National Debt is currently about $6.3 Trillion. The last official figure I saw was $6,399,240,555,827.75 (thatís 13 digits in front of the decimal point). This is the Treasuryís own figure, dated 01/29/2003 from http://www.publicdebt.treas.gov/opd/opdpenny.htm. You can see the current amount (it changes daily) and its history here among other places. While it is true that the economy is a complicated animal, and it manages this debt in some ways that are very productive to American society, this is an amount of debt that is a little on the side of unreasonable. It is not interest free, borrowed money that we can just worry about later.
There is an important, but often misunderstood differencebetween the federal budget deficit or surplus, which is an annual figure, and the ongoing National Debt, or Gross Public Debt. Back in the Clinton years for example, everyone was so excited about the so called surplus. This was an end of the fiscal year figure meaning basically that the government "earned" more in tax revenue from you and I than it spent on all its appropriations, costs, services and other expenditures. To be fair, this was a time of greater economic prosperity than today and there was a lot more wealth on which to generate tax revenue. Similarly, the budget deficit, on annual terms, is when the government spends more than it takes in from tax revenues for the given year. This is almost always the case and most certainly the case right now. The Office of Management and Budget already has estimated that the deficit for 2003 will run from $200 to $300 billion, this includes cost of recent tax proposals by the Bush Administration. Their economic plan costs $670 billion (thatís $670,000,000,000.00). They are banking heavily on the expectation that pumping this money back into the economy will strengthen it both in the short and long term. How we are going to pay for this, in addition to Homeland Security and a possible war is an entirely separate discussion.
This brings us back to the basics of "what happens when we spend more than we have?" The government has to borrow money because it does not collect enough in taxes and fees to pay for all of the government programs funded each year by Congress in the budget process. This practice is called deficit spending.
The federal government borrows money through the sale of Treasury bonds to financial institutions and individual investors. The Treasury bonds are then paid off, plus interest to the buyers, over a set period of time. This money, earned (borrowed) from the sale of Treasury bonds is used by the government mostly to help pay for programs in its operating budget and often to buy back previously issued bonds. These kinds of "buyback" events can often affect the national debt in a positive way, reducing it. This is an important cycle, but feeds on itself in interesting ways because the money that is used to pay the interest on the debt (interest to the bondholders), is ultimately generated by the taxpayers.
The National Debt can be defined as the combined total of money borrowed by the government to cover deficits, plus all the interest owed on the borrowed money. Often we face the danger of reaching the federally legislated "debt limit" at which, theoretically, we default on our loans. Usually, Congress legislates an increase in the debt limit to keep us afloat. But occasionally, whether due to political arm wrestling or time simply running out, money must then be borrowed from other types of government trust funds such as Social Security, Indian and Tribal trust funds or other government pension funds. Hence another huge debate about "lock boxes" and the insolvency of the current system.
There are a number of reasons to be concerned about a rising national debt, a rising national debt limit and the immense amounts of interest the taxpayers must pay out. One of the crucial things at stake is the "Full Faith and Credit" of the United States. Full Faith and Credit refers to a nationís ability to pay its bills on time, no matter what. This is the main indicator of a nationís economic stability and is something the rest of the world definitely pays attention to. The Full Faith and Credit of the United States has rarely been questioned by the worldís investors. A significant concern of the Treasury Department is that exceeding the debt limit and falling into default could make investors doubt the strength of the U.S. economy and become reluctant to buy bonds. At the very least, this would result in increased costs to taxpayers for financing essential government services.
It is true that some debt is good: yes some debt is merely another form of investment in economic growth and people and institutions actually invest in our debt through various kinds of treasury bonds, bills and notes. But there can be big consequences to such an enormous debt: interest charges are just one example. And guess who is paying the interest on the $6,399,240,555,827.75? Thatís right: you and I. The government spends and spends with abandon, often for very good, important and sometimes essential purposes. But the governmentís main source of income is taxes, which we pay more of all the time. Last year, FY02, the government spent about $333 billion of our tax dollars on interest payments against the national debt alone. Think of all the positive and productive uses that money could have gone toward. Or, consider how much less in taxes you might have paid if the debt didnít require so much maintenance. For the sake of comparison, the Department of Education received less than $50 billion. The Department of Defense received around $370 billion.
To make matters more complicated, the currency that we use on a daily basis is no longer backed by gold or silver. What this means, essentially, is that every time money is printed, spent or appropriated it is a charge first against assets that actually exist, and then against the national debt. Once the money in our collective checking account (tax revenues) runs out, we are spending on credit again, further increasing the national debt and the interest that must be paid on that debt.
The tired old argument about our two major political parties is that the Republicans want to tax you less and the Democrats want to tax you more. This is becoming increasingly untrue. The question we should be asking is HOW tax money is spent. Is it spent wisely? Is it spent efficiently? Is the government frugal? How are we prioritizing our expenditures? Whether your complaint is fiscal irresponsibility or corporate welfare, there are a lot of points of view on how our tax dollars are spent. Again, this is a separate, future discussion. One common element you will find in these arguments is that there is plenty of money to go around, itís how itís used that is a problem.
We mustnít further separate government from ourselves by excusing Congress and the Presidentís expenditures as necessary costs to a complicated and advanced society. This is our hard earned money and we should decide how it is spent. As your representatives, the folks in Washington D.C. are obligated to listen and act on your voice in crucial matters such as this. So Speak Up! Remember this when you vote and when you write, call or e-mail your Senators and Representatives. Donít let current or future generations drown in our debt.
Adam J. Coppock