Q. What does government spending that adds to the deficit and debt mean for the average American?
A. According to the Treasury Department, our total national debt now tops $13 trillion. That is $42,000 for each of the 309 million people living in the United States. Since President Obama took office, the national debt has increased at a rate of nearly $5 billion per day. That's almost three times the rate during the prior administration. By next year, the national debt is projected to reach nearly 100 percent of U.S. Gross Domestic Product (our national economic output). That's the highest level since the end of World War II.
Big spenders in the political arena have exploited the economic recession to call for more government spending, higher taxes and new entitlements, from health care to federal student loans. Squeezing out the private sector by growing the government is anti-consumer, anti-entrepreneur, anti-small business and anti-taxpayer. But the biggest loser in this spending binge is the next generation. Our children and grandchildren will be saddled with a legacy of debt fed by unfunded and unsustainable liabilities. Federal spending now represents one-quarter of our economy. If Washington continues to accelerate federal spending, the cost to future generations is clear: bigger chunks of their earnings will be taxed just to pay interest on the national debt. Escalating deficits and debt will lead to a lower standard of living.
Q. How is the national debt financed?
A. Of the present-day $13 trillion national debt, approximately $8.5 trillion is debt held by the public, and approximately $4.5 trillion is debt held by various government trust funds. The amount of debt held by the public is determined by the government's annual cash-flow. When total spending exceeds total taxes, the government has a budget deficit. To finance this deficit, the government borrows from the public by selling debt, such as Treasury bills, notes, and bonds. About 53 percent is held by U.S. investors, while foreign investors hold 47 percent. Among foreign investors, China is the largest at 11 percent. In addition to the debt held by the public, the federal debt includes debt held by various government trust funds, such as Social Security and Medicare. Whenever a trust fund program collects more than it spends, the surplus is invested in Treasury securities. These securities earn interest which is credited to the trust funds by issuing additional securities. It's important to understand the amount of debt held by the trust funds does not reflect the government's future obligations. For example, the Treasury Department reports that the total amount of debt held by all of the trust funds is about $4.5 trillion. However, the Social Security and Medicare Trustees report that the unfunded obligation of Social Security and Medicare, over the next 75 years, is almost $46 trillion, although there is a considerable degree of uncertainty surrounding these long-term projections.