Sunday, December 20, 2009

U. S. Federal Debt

Congressional Budget Office director Doug Elmendorf has recently been quoted as saying the following: “The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services. That fundamental disconnect will have to be addressed in some way if the budget is to be placed on a sustainable course.”

Elmendorf is referring to our federal government’s ever growing debt which reflects the fact that we continue to ask our government to provide more services than we are willing to pay for. As you hear about the reports of $12 trillion in Federal debt the numbers are so big it its difficult to comprehend what that means. Let alone the even bigger debt numbers the CBO currently projects for the future if we stay on this “unsustainable course.”

If you look at just the publicly held debt (not the money the Government loans to itself from Social Security) and you break it down to how much is owed for each family (for example a family of 4) you get $100,551.72. That means that if the government balanced the budget today and each person and family had to pay back their part of the debt that family of 4 would have to make a $629 monthly payment for 20 years in order to pay back the debt. That’s like every family in America having a second mortgage payment for a modest home hanging over there head.

The CBO makes projections regarding the Federal Government’s future debt which is even more concerning. They make a 25 year projection which would be for most people when your children are at about the same place in life that you are now. For example our kids are moving into their college years now and in 25 years their kids (my grandkids) will probably be heading to college. In 25 years, if congress does what they typically do, the debt per family will be $612,701. In today’s dollars (factoring in inflation etc.) that would translate into a $1,794 monthly payment for 20 years. 15 years after that (probably when my grandkids have their own family) if congress doesn’t change their approach we could be looking at a payment of $2,872 hanging over their head. The CBO puts footnotes on these projections. Debt levels this great would leave the economy in shambles and America as we know it would not exist.

The not as bad but still not good news is that if congress becomes more responsible and reduces spending (and consequently benefits) and/or increases taxes (something I think we should avoid) the situation is not quite as bleak. 25 years from now the “payment” hanging over each family’s head would be equivalent to $783 a month and $1,145 15 years beyond that. Not great but it shows that if we demand that our law makers take action now we can make a positive impact for our children and grand children.

It sounds like the Health Care bill may help move us in the right direction but we will have to wait and see and we need to hold our law makers accountable to take on the serious problems of deficit spending and debt quickly.

Some websites used to develop this information:

1 comment:

Thomas said...

Mr. Elmendorf makes a lot of sense. Here’s my take:

In the 90s, the Clinton Administration balanced the budget and created a surplus. They had a very strict policy called pay-go, which meant that any expenditure had to be off-set by cuts elsewhere or more revenue. Unfortunately, Bush did not continue this policy and favored tax cuts coupled with large increases in spending. This created a massive debt. I guess my point is that good, commonsense government policies can rein in the debt and that bigger deficits are not inevitable. Substantial debt reduction has been done before, by Clinton. Granted, the deficit size now is greater than the deficit left by Reagan/Bush, and the current economy needs some additional support, but this is not an insurmountable problem. Pay-go was very effective in reducing the deficit in the 90s. I believe Obama is in favor of it. One last thing is that I think you’re right about healthcare reform, especially cost containment, and its long term effects on reducing the deficit. But unfortunately, it doesn’t look like that is going to happen.