Biden’s nearly $2 trillion American Rescue Plan was signed into law last week. In reaction to this historic stimulus package, the Washington Post writes how Biden “showers money on Americans.” Can’t you feel the poverty washing away with all this money printing? Clouded by the several stimulus packages to aid the effects of COVID-19 is the growing national debt.
Let’s be clear. Neither Democrats nor Republicans care much about government spending and the growing national debt. Neither party is willing to address the out-of-control government spending. Why? It’s because both parties benefit from bringing home the pork to their districts.
As of March 1, 2021, the national debt exceeds $28 trillion. Which is a lot of zeros to go along with the piles of cash each taxpayer owes. And the interest on our debt is scary. Interest on the national debt is close to $400 billion! Yes, you read that correctly.
Here are the facts on the national debt that you need to know and why all Americans should be concerned.
What you need to know
What is the national debt? The national debt is defined as the “sum of all outstanding debt owed by the federal government.” The U.S. Treasury Department tracks total outstanding public debt by the government and is reported each day. Another valuable resource that tracks government spending is the National Debt Clock.
All the debt the federal government owes is borrowed money. The debt consists of public and intragovernmental.
Of the $28 trillion in national debt, three-fourths or about $22 trillion in debt held by the public. This means the government owes money to buyers of U.S. Treasury notes, including individuals, companies, and foreign governments.
And the remaining $6 trillion is intragovernmental debt. The Treasury owes this debt to its “various departments who hold government account securities.” This debt includes various entitlement plans the government owes to its citizens, which provides for Social Security. The long-term unfunded liabilities-Medicare (Parts A, B, D), Social Security, federal debt held by the public, and federal employees and veteran benefits-is nearing $159 trillion.
The Growing Burden of Debt
Understanding how much debt the U.S. has amassed should be of utmost concern for all. According to the World Bank, the gross domestic product in 2019, the total monetary or market value of all finished goods and services produced in a given year, was about $21.43 trillion. The national debt-to-GDP ratio currently hovers at 129.81%, up from 53.13% in 2000, more than doubling in two decades.
A high debt-to-GDP ratio is undesirable for a country, “as a higher ratio indicates a higher risk of default.” What’s the tipping point for sovereign debt? In a study conducted by the World Bank, a ratio that exceeds 77% for an extended period may result in slow economic growth.
The U.S. has never defaulted on its debt. According to the Balance, there are two scenarios under which the U.S. would default on its debt. The first is if Congress does not raise the debt ceiling. Under the Bipartisan Budget Action of 2019, Congress suspended the debt ceiling until after the 2020 presidential election, ending on July 31, 2021. The second scenario is if Congress stops paying the interest on its debt.
Social Security and the federal governments’ major healthcare programs account for 100 percent of the projected growth in federal spending over the long term. According to Peter G. Peterson Foundation, spending on these two budget categories is expected to increase by 50 percent to 15.5 percent of GDP in 2050.
However, experts believe the current costs of servicing the debt are the most significant problem rather than the rising debt-to-GDP ratio. According to an analysis from J.P. Morgan, at some point, “rates will rise, and deficits and debt will have to be tackled through spending cuts or tax increases.”
As federal debt increases, so does the cost of interest on the debt. The interest on our debt will be burdensome on our national budget, and it will increasingly crowd out spending on essential expenses such as infrastructure improvement and education. CBO projects by 2047, “interest costs are projected to be more than two times what the federal government has historically spent on R&D, infrastructure, and education combined.”
Why it Matters
Our gross out-of-control spending should concern any rational tax paying citizen as the debt is hovering around $223,893 per taxpayer. The last time the U.S reached this debt ratio was back in World War II; however, the debt was paid off due to the rapid economic growth.
The long-term fiscal outlook is unsustainable and will climb significantly over the next 30 years. “A growing debt burden could increase the risk of a fiscal crisis and higher inflation as well as undermine confidence in the U.S. dollar, making it more costly to finance public and private activity in international markets,” according to a CBO report.
The time to act on addressing our growing debt is now; not tomorrow. We have to tackle our unsustainable debt by cutting costs on entitlement programs and defense while increasing taxes. Our debt is a threat to America’s national security and to the prosperity of future generations.
Unfortunately, our elected officials are addicted to spending, and addressing our long-term debt doesn’t seem to factor in their spending decisions.
Mike Price is the founder and Managing Editor of ThinkCivics. He holds a BA in political science and a master’s degree in public administration from Northern Kentucky University. He has been writing about politics, government, and culture for over a decade. When he is not writing about politics, he writes about his faith over on his Christian men’s blog Joshua’s Outpost. Follow him on Twitter at @MPriceMPA or contact him at email@example.com