Missing the Point: Our National Debt

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As of this writing, the national debt of the United States – money our country has borrowed to cover expenses in excess of the tax revenues we collect – is, round numbers, $34 trillion.  A trillion is a thousand billion dollars.  So that’s 34,000 billion dollars, more money than Taylor Swift made this year on her Eras Tour.

We have a total population of about 330 million people.  Do the math.  $34 trillion divided by 330 million is $103,000 of national debt per person.  …What?  You have a family of four?  Mommy, Daddy, big sister, and little brother?  That’s a total of $412,000 which is your family’s share of the national debt.  “Sure,” you may be reassuring yourself, “but it’s not like it was a second mortgage or the balance on my credit card.”  Of course not.  But then, while you may not feel your national debt in quite the same way, it’s worse.

The interest on this $34 trillion debt – not including the repaying of any principal – is $1.8 billion per day or $659 billion per year.  Given that our government is forever spending more than the taxes it collects, that we’re “deficit spending” all the time, we’re basically paying interest on the national debt by borrowing the money we need to make our interest payments.  We are, in other words, adding the interest payments to the national debt and then subsequently accruing interest on the interest we’ve just paid.

Deficit spending was supposed to be borrowing that we do occasionally in a crisis and then pay back as soon as life returns to normal.  Turns out, however, that we’re in a perpetual state of crisis so no one really cares anymore about balancing the budget in a given fiscal year or over time.  Collecting substantially more than we spend and saving the surplus for a rainy day has become an absurd concept.

It’s nuts and a recipe for disaster.  Why’s that?  Because the countries and other entities who are loaning us money will …  No, strike that.  Are slowly, but surely coming to the conclusion that, sooner or later, we’re going to default on our obligations.  And so, the money we borrow is becoming increasingly expensive.  Because lenders see us as an increasingly risky investment.  And one day we just won’t be able to borrow what we need to fund the over-spending to which we’ve become addicted.

What makes investment in US government “paper” risky?  It’s mostly about the debt load that we’re carrying relative to the size of our economy and government revenues.  Political uncertainty and instability are also pushing rates up.  That we’re actually considering re-electing Donald Trump isn’t helping.  Nor is Congressional discord or the potential for war in the Middle East and elsewhere.

To be clear, this is not about Congress being unable to agree on raising the debt limit and shutting down the government for a few days.  I’m talking about nothing less than the eventual bankruptcy of the United States.  I know you probably don’t believe that can ever happen, but that’s wishful thinking.

I won’t bore you with the details, with the implications for our economy of continuing unbridled borrowing, except to say that it won’t be pretty and will precipitate an end to the world as we know it.  If only I was kidding, but I’m not.

To give them credit where credit is due, Republicans have been warning us about our national debt being out of control for some time, albeit while being unwilling to do what everybody knows we have to do to save ourselves before it’s too late.

Congress has two options which, by the way, are not mutually exclusive.  It can reduce government spending to levels below the taxes we are currently collecting and then use the surplus to pay down the national debt.  Republicans say that they are willing to do this.  Democrats are not, because…  because it’s not possible.  Not really.  And/or Congress can raise personal and corporate taxes which is not a popular option for either party.

Just between you and me, if we don’t raise taxes…  If we don’t increase federal tax revenues to the point of creating substantial surpluses, we’re going out of business.  If you think Donald Trump is a threat to our Democracy, which he is, the danger he poses to the way of life we take for granted is a gnat on the elephant’s back compared to the impact of our government – the government of the most powerful, most influential nation on the planet – effectively going bankrupt.

Keep in mind the order of magnitude of the problem we’re talking about.  US government spending in fiscal 2023 was $6.13 trillion.  Corresponding tax revenues were only $4.44 trillion.  With a national debt of $34 trillion, it would take us the better part of a decade to pay off our national debt, including interest, even if we spent every dollar of the federal taxes we pay to do it.

Part of our problem is that a trillion dollars is an unimaginably large sum of money.  So large that ordinary people like us can’t wrap our heads around it in any meaningful way.  It seems phony baloney, like something we’re never going to have to worry about – part of some problem that other people will figure out for us.  Other people like the scientists who will deal with an extinction-level meteor that might be coming our way someday.  Understanding the climate crisis is easier.

The unfortunate fact is that we can’t make any abrupt or even significant cuts to government spending without devastating our economy.  We can make relatively lesser cuts to reduce waste and lower the costs of providing government services by improving the efficiency of our operations.  Absolutely, we need to and can reduce government spending by billions, perhaps even more than a trillion dollars a year.  That said, we can’t just hack away at the federal budget under the thoughtless Republican excuse of getting runaway government spending under control.

No, folks.  We need to raise taxes.  We have no other choice.

I could argue that US corporate and personal income tax rates are low relative to many other world economies.  But I won’t, because it’s not relevant.  And low-tax advocates can make all the arguments they want to the effect that our economy is strong precisely because our tax rates are so low.  But then those points aren’t relevant either.  None of it makes any difference.  Our problem is, we – the United States government and our economy in general – are existing via the financial graces of other parties that we do not control.

Ladies and gentlemen, I know it’s a rude awakening, but “the market is in charge.”  The market I’m talking about is the domestic and world market for government debt.  I’m talking about the countries and other entities – from friendly Western democracies and private sector buyers of debt, including many American people and institutional investors, to the likes of China – who are willing to buy our debt, but to what extent and at what price.

Worthy of note is the fact that all this borrowing is most definitely not a-political process.  China, for example, holds over $859 billion of our national debt.  That’s only 2.5% of the total $34 trillion, but do we really want them to stop buying our paper while encouraging other governments around the world to follow suit?  Does anyone seriously think we’re not obligated in various ways to governments and other investors who are keeping our government afloat?

We need to reduce government spending by eliminating waste and inefficiency.  More importantly, we need to raise personal and corporate taxes.  As quickly as possible, in ways that will minimize the impact on consumer demand for goods and services.  To no one’s surprise, Congress is not showing the requisite urgency to overcome political differences and do what it takes to avoid what is sure to be an otherwise catastrophic outcome for our country and the world economy.

The answer is not chaos in the House of Representatives.  It’s civility and thoughtful compromise.

People currently in Congress may not get it, but then we, the voters, can replace them with elected representatives who do.  As voters, we need to stop missing the point and get our collective act together in a hurry.