Thursday, March 9, 2017

Examining the Federal Debt

Examining the Federal Debt

By: Kyle Turba

One of the most common economic statistics that politicians reference is our national debt and how it is constantly getting larger and larger. Currently, we have a debt that is approaching $20 trillion (click here for current amount) and although the debt is being repaid, more and more is piling up as a result of the constant spending that the government has to do.

Every year the President presents a budget to Congress and then Congress reviews the budget and either approves it or makes revisions to it. This budget covers everything from payments for Social Security to Medicare to military spending and transportation spending. Additionally, the government makes projections as to how much revenue it plans to bring in through the various taxes we pay. Below is the breakdown of spending and revenue projections from the 2016 budget (Tucker, J).  

Government Spending in 2016


 Government Revenue in 2016


Based on these numbers, the federal government spent more than it was taking in. This results in an annual deficit. As of recently, annual deficits are common for the United States Government. In 2016, the federal government was projecting a 2.5% deficit (Tucker, J). This makes since because the government was bringing in less money than it was spending. Looking at the chart below, the federal government has not had a surplus in around 17 years.   


The idea of how much debt America should have goes all the way back to the first years of our nation’s existence. Thomas Jefferson and Alexander Hamilton fought rigorously on if our country should have a national debt. Hamilton wanted there to be some debt, but Jefferson was against that idea (Tucker, R). I for one support the idea of the United States having a national debt, but it needs to be an amount that isn’t outrageously high.

Some federal debt is good because it shows that the government is working in a variety of ways for the American people. Whether it be to eliminate a recession by increasing government spending and the overall aggregate demand like in 2008 or improve the standard of living for all Americans (Johnson).

Alexander Hamilton had an interesting opinion on the national debt back in the late 1700’s and that is that it is good to have debt because it ensures that business and other countries will want America to succeed and continue to exist in order to get repaid (Tucker, R). Although this may be a little outdated, it is an interesting idea that can get people thinking.

Although I am in support of some debt, the current levels that we have are way to high. Our debt is quickly approaching $20 trillion, and that is a number that is not going to be repaid for years. Plus the interest that we pay on our debt is way too high. In the 2016 budget (see graph above) it accounted for 7% of spending (Tucker, J). The majority of that money could be used in much better ways like fund, education programs, support our veterans and institute long term change in America.

The solution to the debt problem is not easy one, the government cannot simply print more money because that would cause inflation and that would hurt the national debt even more. Other than that, it is either having the government spend less, increase taxes on citizens or some combination of the two (Mayhew).  

This is not a problem that I would want to solve, but if I had to I would cut government spending rather than increase taxes. Looking at the federal budget from 2016 (see graph above) 2.6 % would need to be cut in order for the numbers to show a surplus which would lower the overall debt. What I would do is make several small cuts in various departments rather than taking this amount away from one or two areas. I would cut 0.75% from Social Security, 0.25% from Medicare, 0.50% from Food and Agriculture, 0.50% from Transportation, 0.20% from Science, International Affairs and Energy/Environment. That would give us 2.6% in spending cuts and a surplus for 2016. See the chart below to see where I would reduce spending in terms of percentages.

 

This is not an easy problem to solve due to the fact that there will always be people who will be upset by what is done. Now we will have the opportunity to see if President Trump and his policies will be able to reduce our annual deficits. At the end of the day, our national debt keeps climbing and something needs to be done before it begins to cause problems that cannot be fixed.


Works Cited

Johnson, Simon, James Kwak. “National Debt for Beginners.” NPR, NPR, 4 Feb. 2009, http:// www.npr.org/templates/story/story.php?storyId=99927343.    

Mayhew, Anne. “Why There Is Nothing Scary About the National Debt.” Scholars Strategy Network, Scholars Strategy Network, Feb. 2013, http://www.scholarsstrategynetwork.org/ brief/ why-there-nothing-scary-about-us-national-debt.    

Tucker, Jasmine. “President’s 2016 Budget.” National Priorities, National Priorities, 9 Feb. 2015, https://www.nationalpriorities.org/analysis/2015/presidents-2016-budget-in-pictures/.     

Tucker, Rich. “America’s Debt, Through the Eyes of the Founders.” Heritage, The Heritage Foundation, 8 Oct. 2013, http://www.heritage.org/political-process/report/americas-debt- through-the-eyes-the-founders.   

3 comments:

  1. This is a great post about a very relevant topic in terms of national concerns. Our debt is very large and we need to move towards paying it off instead of letting the pile of what we owe grow higher. I think that by using tax dollars to pay it off is rather inefficient. Along with doing things such as taxation to come up with the money to pay it back we should also start using our own American made products so we don't need to pay to import them from other countries and let the debt grow higher. The opportunity cost of producing and using our own goods might be that there are differences from the foreign products we used to use, but by doing this we will have the marginal benefit of paying off our debt.

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  2. Our debt may not be a big a deal as you believe it is. Our debt is not the highest it has ever been in comparison to our GDP. For example, dept to GDP was previously 122% of the GDP at the end of world war 2. We didn't have to make massive cuts to shrink the percentage of debt owned. Instead, we grew our economy and as our economy grew the debt shrunk despite having deficits. The economy won't grow by embracing austerity measures. Rather, it may contract and fall into a recession driving up government expenditures and driving down government revenue.

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  3. Reducing government spending in the long run will not increase the GDP, but if we can reduce the around of our GDP dedicated to paying interest, that money can be dedicated to further growing the economy. Similar to any individuals economics, the country should live within its means, barrowing as little as possible. Although I believe the debt will never be an issue as we could simply say we are not paying it back, this tactic would harm our reputation in the world and if we actually need to barrow money, will not be able to. The simplest way to solve this is to make the government more efficient, so it costs less to accomplish the same tasks such as providing labor opportunities to those on welfare so they can gain work experience and feel like a contributing member of society.

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