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High and rising government debt slows growth, crowds out private investment, limits the government’s ability to respond to unexpected emergencies, and elevates the risk of a sudden fiscal crisis, where investors would lose confidence in U.S. Treasury bonds and the U.S. dollar. This fact sheet lays out everything legislators and the public need to know about the U.S. federal debt to help them examine the unsustainability of the U.S. budget.
- The total or gross federal debt is $31.5 trillion. This is the debt subject to the debt limit.
- At 120 percent of gross domestic product (GDP), the gross federal debt exceeds the amount of goods and services produced in the United States every year by one‐fifth.
- The total federal debt burden per U.S. person is $94,000.
- The total federal debt burden per U.S. household is $240,000.
- Total federal debt consists of publicly held debt (borrowed from credit markets, including from individuals, state/local governments, foreign entities, and the Federal Reserve) and intragovernmental debt (borrowed from federal trust funds like Social Security).
- The publicly held or public debt is $24.6 trillion. This debt is borrowed in credit markets.
- At 95 percent of gross domestic product, the publicly held debt is approaching the size of the U.S. economy, as measured by all the goods and services produced in the United States in one year.
- Such high levels of debt reduce economic growth. Researchers identified that government debt drags down economic growth beginning at 78 percent of GDP.
- Economists focus on the publicly held debt to assess how government debt affects interest rates and crowding out of private investment, because this debt is mostly held outside the federal government and traded in public markets.
- The public debt will surpass its WWII‐high of 106 percent of GDP by 2028.
- The public debt is projected to grow to 118 percent of GDP by 2032 under CBO’s optimistic scenario and to 130 percent of GDP by 2032 under a more realistic scenario, in which the 2017 middle class tax cuts are extended.
- We owe one‐third of the publicly held debt to foreign entities; two of our biggest foreign bondholders are China and Japan.
- The U.S. Federal Reserve holds about one‐quarter of publicly held debt. When the Fed buys U.S. government debt, this is called quantitative easing, and represents the issuance of new money in the economy. When the money supply increases faster than production, this leads to inflation.
- The federal government paid $475 billionin interest costs in 2022. Net interest is the cost of servicing the publicly held debt, paid to foreign and domestic bondholders.
- 10 cents of every taxpayer dollar the federal government collected last year went toward paying the interest on the debt.
- If average annual interest rates were 1 percentage point higher than CBO projects, cumulative interest costs would increase by $4 trillion over 10 years.
- The annual federal deficit will more than double over the next 10 years from $1.4 trillion in 2023 to $2.9 trillion in 2033. The annual deficit is the difference between annual government spending and revenues.
- Federal spending is projected to rise to 25 percent of GDP by 2033. That’s 4.4 percentage points above the historical average over the last 50 years.
- Federal revenues will rise to 18 percent of GDP, about 1 percentage point above the historical average.
- The 75‐year unfunded obligation, as reported in the Financial Report of the United States Government, is $79.5 trillion. That’s the difference between the present value of total government receipts and total non‐interest government spending over the next 75 years.
- 95 percent of the total non‐interest unfunded obligation is driven by social insurance programs (98 percent by Social Security and Medicare; and less than 0.2 percent by Railroad Retirement and Black Lung Benefits).
- Public debt will reach 200 percent of GDP by 2046 and 566 percent of GDP by 2097.
- According to Treasury and the Office of Management and Budget: “the continuous rise of the debt‐to‐GDP ratio indicates that current fiscal policy is unsustainable.”
Further reading:
- The Debt Limit and the High Costs of Debt [Cato]. “High and rising debt slows growth, crowds out private investment, limits the government’s ability to respond to unforeseen emergencies, and elevates the risk of a sudden fiscal crisis where investors would lose confidence in U.S. Treasury bonds and the U.S. dollar.”
- The CBO Budget and Economic Outlook in the Post‐COVID Fiscal Era [Cato]. “CBO forecasts a worsening fiscal trajectory characterized by high and rising federal debt [in which] pandemic spending followed by a surge in interest costs [has] accelerated the [unsustainability of the U.S. budget.”
- The Impact of Public Debt on Economic Growth [Cato]. Academic research has identified a negative effect of high and rising debt levels on economic growth. “For the 25 studies that provide threshold estimates, [the] mean and median threshold levels [where debt drags down growth] are found at 78 percent and 82 percent of GDP [for advanced countries], respectively.”
- Q&A: Gross Debt Versus Debt Held by the Public [CRFB]. “This explainer will lay out everything you need to know about the different measures of debt and what they mean for the government’s fiscal situation.”
Download a printable PDF version of this fact sheet here.
More Evidence for Switzerland’s Spending Cap
Back in 2012, I wrote a column for the Wall Street Journal to highlight the success of Switzerland’s spending cap (also known as the “debt brake”).
Swiss voters voted for this spending cap in 2001 and ever since it took effect in 2003, government spending has increased by an average of 2.2 percent annually, only about half as fast as it was growing in the decades before the cap was imposed.
To show the ongoing success of the debt brake, here’s a map comparing changes in the burden of spending in Switzerland and its four major neighbors (France, Germany, Italy, and Austria). As you can see, IMF data reveals that Switzerland has been more responsible.
I even calculated changes in national spending burdens since the start of the pandemic.
You can see that all governments used the virus as an excuse for more spending, but the fiscal damage was most contained in Switzerland.
Seems like Switzerland is a role model, right?
Professors Steve Hanke and Barry Poulson presumably agree. They have a column in National Review arguing in favor of a similar spending cap for the United States.
President Biden’s budget proposal for 2024 makes it clear that the U.S. needs a budget straitjacket sooner rather than later. …Switzerland has been arguably the most successful country in reining in budget deficits and its debt burden. …The Swiss debt brake requires that expenditures be brought into balance with revenues.
A cap is imposed on spending based on expected revenue, and revenue is projected based on long-term trends in the real growth of national income. Expenditures may exceed the cap in response to extraordinary events such as war, but if that’s the case, eventually, revenues from budget surpluses must be generated and set aside to offset this excess expenditure. We propose a debt brake for the U.S. that would initially be more stringent than the Swiss debt brake…a spending limit (read: cap) be calculated each year, and that the cap be reduced by 1 percent.
Interestingly, they want a spending cap that is stricter than the Swiss version.
That would be ideal (the tighter the cap, the greater the progress), but I’d settle for the Swiss approach. Why? Because here’s the data comparing US profligacy and Swiss prudence.
When I contemplate these numbers, my disdain for Bush, Obama, Trump, and Biden becomes even more intense.
They all put political ambition about what’s best for America.
But I’m digressing. Let’s put the focus back on the success of the Swiss spending cap.
It’s worth noting, for instance, that Switzerland also is out-performing the United States when comparing changes in government debt.
And the Swiss also have been enjoying better economic performance since they imposed a spending cap on their politicians.
I’ll close by observing that a spending cap would have prevented massive debt accumulation in the United States. And the same is true for other nationsas well.
P.S. Colorado has a very successful spending capknown as TABOR.
P.P.S. There’s plenty of academic evidence for Switzerland’s debt brake. But what’s more surprising are that pro-spending cap studies from the International Monetary Fund (here and here), the Organization for Economic Cooperation and Development (here and here) and the European Central Bank (here and here).
Open letter to President Obama (Part 704)
(Emailed to White House on 6-25-13.)
President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500
Dear Mr. President,
I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.
The federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation. We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding principles that made our country great. We also need to realize that a big government will encourage waste and corruption. The recent scandals in our government have proved my point. In fact, the jokes you made at Ohio State about possibly auditing them are not so funny now that reality shows how the IRS was acting more like a monster out of control. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.
______________________
17 Reasons the large national debt is a big deal!!!
We got to stop spending so much money and start paying off our national debt or the future of our children and grandchildren will be very sad indeed. Everyone knows that entitlement spending must be cut but it seems we are not brave enough to do it. I have contacted my Congressmen and Senators over and over but nothing is getting done!!! At least there are 66 conservative Republicans in the House that have stood up and voted against raising the debt ceiling.
June 17, 2013 at 7:13 am
Remember the debt? That $17 trillion problem? Some in Washington seem to think it’s gone away.
The Washington Post reported that “the national debt is no longer growing out of control.” Lawmakers and liberal inside-the-Beltway organizations are floating the notion that it’s not a high priority any more.
We beg to differ, so we came up with 17 reasons that $17 trillion in debt is still a big, bad deal.
1. $53,769 – Your share of the national debt.
As Washington continues to spend more than it can afford, every American will be on the hook for this massive debt burden.
SHARE this graphic.
2. Personal income will be lower.
The skyrocketing debt could cause families to lose up to $11,000 on their income every year. That’s enough to send the kids to a state college or move to a nicer neighborhood.
3. Fewer jobs and lower salaries.
High government spending with no accountability eliminates opportunities for career advancement, paralyzes job creation, and lowers wages and salaries.
4. Higher interest rates.
Some families and businesses won’t be able to borrow money because of high interest rates on mortgages, car loans, and more – the dream of starting a business could be out of reach.
5. High debt and high spending won’t help the economy.
Journalists should check with both sides before committing pen to paper, especially those at respectable outlets like The Washington Post and The New York Times. A $17 trillion debt only hurts the economy.
6. What economic growth?
High-debt economies similar to America’s current state grew by one-third less than their low-debt counterparts.
7. Eventually, someone has to pay the nation’s $17 trillion credit card bill, and Washington has nominated your family.
It’s wildly irresponsible to never reduce expenses, yet Washington continues to spend, refusing to acknowledge the repercussions.
>>>Watch this video to see how scary $17 trillion really is for your family.
8. Jeopardizes the stability of Medicare, Social Security, and Medicaid.
Millions of people depend on Medicare, Medicaid, and Social Security, but these programs are also the main drivers of the growing debt. Congress has yet to take the steps needed to make these programs affordable and sustainable to preserve benefits for those who need them the most.
9. Washington collects a lot, and then spends a ton. Where are your tax dollars going?
In 2012, Washington collected $2.4 trillion in taxes—more than $20,000 per household. But it wasn’t enough for Washington’s spending habits. The federal government actually spent $3.5 trillion.
>>> Reality check: See where your tax dollars really went.
10. Young people face a diminished future.
College students from all over the country got together in February at a “Millennial Meetup” to talk about how the national debt impacts their generation.
>>>Shorter version: They’re not happy. Watch now.
11. Without cutting spending and reducing the debt, big-government corruption and special interests only get bigger.
The national debt is an uphill battle in a city where politicians too often refuse to relinquish power, to the detriment of America.
12. Harmful effects are permanent.
Astronomical debt lowers incomes and well-being permanently, not just temporarily. A one-time major increase in government debt is typically a permanent addition, and the dragging effects on the economy are long-lasting.
13. The biggest threat to U.S. security.
Even President Obama’s former Chairman of the Joint Chiefs of Staff thinks so:
SHARE this graphic.
14. Makes us more vulnerable to the next economic crisis.
According to the Congressional Budget Office’s 2012 Long-Term Budget Outlook, “growing federal debt also would increase the probability of a sudden fiscal crisis.”
15. Washington racked up $300 billion in more debt in less than four months.
Our nation is on a dangerous fiscal course, and it’s time for lawmakers to steer us out of the coming debt storm.
16. High debt makes America weaker.
Even Britain’s Liam Fox warns America: Fix the debt problem now, or suffer the consequences of less power on the world stage.
17. High debt crowds out the valuable functions of government.
By disregarding the limits on government in the Constitution, Congress thwarts the foundation of our freedoms.
Read the Morning Bell and more en español every day at Heritage Libertad.
_____________
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com
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By Everette Hatcher III | Posted in Current Events | Edit | Comments (0)
The Daily Hatch 