The Unimaginable National Debt Will Swallow Everyone

Many Americans think the national debt is a monster that will slurp us all up and swallow everyone at any moment. “We’re mortgaging the future of our grandchildren; soon, it will take all the tax money the US government receives to pay the interest on the national debt; the national debt will get so large we will collapse under its weight; it’s immoral or wrong to run up this kind of debt….”

Americans have strong feelings about the national debt, bolstered by a slight hangover from the Puritans that borrowing is practically immoral. Few of us wish to be immoral, but most of us owe money because we have to borrow to buy a house or a car.

How Much Do We Owe?

How big is the U.S. National debt? In August 2022, the US National debt totaled approximately thirty-one trillion dollars. [1] What percent of the Federal budget goes to pay interest on the debt? “As of July 2022, it costs $589.5 billion to maintain the debt, which is 12.20% of the total federal spending per Anum.” [1]

Origin of the National Debt

Over the decades, the US Federal Government has often spent more in numerous fiscal years than received in tax revenue. When did we start this habit? During the American Revolution, we spent 78 million dollars more than we had. But that was peanuts compared to the Civil War when the national debt increased by 4,000 % between 1861 and 1865. Deficit spending is not an invention of the modern era, we’ve been doing this for a long time. [2]

Each year that we run a budget deficit to pay for government spending approved by Congress, we have to borrow the money to cover that deficit. The national debt is simply the long-term accumulation of annual budget deficits. “Over the past 100 years, the US federal debt has increased from $373.7 B in 1921 to $28.4 T in 2021. (using inflation-adjusted dollars). [1]

States Have to Have Balanced Budgets. Why Doesn’t the Federal Government?

This question often comes up when people discuss the U.S. National Debt, but there are several key reasons why the Federal government usually runs a deficit. First, states have capital budgets while the Federal government does not. When states build roads, for example, they pay for those roads by issuing municipal bonds and paying the money back over time.

The U.S. Government doesn’t operate that way. Uncle Sam pays cash and pays all his bills within thirty days.  When the Feds build roads, they don’t pay out of a separate capital budget.  Same as when we build an aircraft carrier, which costs around five billion dollars. The Federal Government pays an agreed-upon amount at various stages of construction. Once the US Navy accepts the ship, we make the last payment. [3]   The Feds don’t go to First National once a week and pay them $100 million against the loan we took to build the aircraft carrier.

Secondly, the Federal government has to be able to respond quickly to emergencies such as the COVID-19 pandemic. Lots of money had to be spent, which could not have been done without the ability to borrow money immediately.

While we don’t like to admit it, we run deficits most years and have a large national debt because we all want services from the government, but we don’t want to pay enough taxes to cover the spending. Simple to state but hard to fix.

 

Resources:

[1] https://fiscaldata.treasury.gov/national-debt/#national-debt-explained

[2] https://home.treasury.gov/

[3] US+Navy+photos+USS+Eisenhower+trials

 

Contributing Writer: Subject Matter Expert Charles McCain

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