The United States national debt has officially exceeded $31 trillion for the first time in history, the Treasury Department confirmed on October 4.
The US government owed a total of 31 trillion, 123 billion, 887 million, 781 thousand, 401 dollars and 34 cents as of October 3, according to publicly released Treasury figures.
At the moment of President Joe Biden’s inauguration, in January 2021, the debt stood at $27.75 trillion, according to the Congressional Research Service.
“It was $21 trillion just five years ago,” Congressman Chip Roy, a Texas Republican, lamented on Twitter after the news broke.
The national debt stood at $19.94 trillion when President Donald Trump took office in 2017, and exploded in the past few years as the Federal Reserve printed money to deal with the COVID-19 sham.
Most of the debt is held by private individuals, to the tune of $24 trillion, while debts to foreign governments amount to almost $7 trillion. Much of the world indirectly subsidizes the US dollar as the global reserve currency.
Congress has made many attempts to lower the national debt, but it hasn’t been able to reduce the growth of what the nation owes. The U.S. debt is the outstanding obligation owed by the federal government.
It exceeded $31 trillion and has increased by at least $1 trillion each year since 2016.
What’s Stopping the U.S. From Paying Down Its Debt?
Most creditors don’t worry about a nation’s debt, also known as “sovereign debt,” until it’s more than 77% of gross domestic product (GDP). That’s the point at which added debt cuts into annual economic growth, according to the World Bank.
At the end of the second quarter of 2021, the U.S. debt-to-GDP ratio was 125%. That’s much higher than the tipping point and is a concern for many. Over $22 trillion of that national debt is public debt, which is what the government owes to investors and taxpayers.
Congress places a limit on public debt. It increased the limit by $2.5 trillion in December 2021, to nearly $31.4 million.
Why isn’t the U.S. eliminating its debt and paying people back? There are a few reasons.
Economic Growth Has Outpaced Its Debt
U.S. economic growth has historically outpaced its debt. The U.S. debt was $258.68 billion in August 1945, but the economy outgrew that in a few years. GDP more than doubled by 1960. The Democratically lead Congress believes that today’s debt will be dwarfed by tomorrow’s economic growth.
Congress Has a Lot to Lose
Those same Democratically elected members of Congress have a lot to lose by cutting spending. They could lose their next election if they cut Social Security or Medicare benefits.
Raising Taxes Isn’t Popular
Raising taxes is politically unpopular. Some people believe that President George H.W. Bush lost reelection because he raised taxes after promising he wouldn’t at the 1988 Republican convention. He raised taxes in 1990 to reduce the deficit, and voters remembered.
Four Ways the U.S. Could Pay Off Its Debt
There are two main themes in most discussions about paying off the national debt: cutting spending and raising taxes. There are other options that might not enter most conversations but can aid in debt reduction, too.
The 2010 bipartisan Simpson-Bowles report is a good example of how the government could cut spending to reduce debt. The report proposed balancing the budget through a mix of spending cuts and tax reform. Congress didn’t adopt the complete plan, but the government did implement parts of it with some success.
A 2015 report from the Committee for a Responsible Federal Budget indicated that although a piecemeal approach reduced debt, full-fledged adoption of the Simpson-Bowles plan may have produced a significantly lower debt-to-GDP ratio.
Raising taxes can generate revenue that the government can use to pay down debt as well as invest in programs that support the economy. But it can cut into tax revenue and hurt the economy if the government raises taxes too high. Not only that, mandatory taxation is heavily contested as being unconstitutional by many voters and the working class.
Grow the Economy Faster
Increasing the GDP has a twofold benefit: It generates extra revenue to pay down debt, and it reduces the debt-to-GDP ratio if GDP growth outpaces debt growth.
Driving economic growth is one way to reduce the national debt, but Congress tends to disagree on how to create that growth. Most Democrats push increased spending, while most Republicans champion lower taxes. However, unlimited growth is an unrealistic goal, so growth alone can’t solve the federal debt.
Congress could shift spending from defense to job-creation areas like infrastructure and education. Almost 15% of government spending goes to the military. But past studies indicate that money spent on the military is less effective in creating jobs than money spent in other areas.
According to a report from the Political Economy Research Institute at the University of Massachusetts, Amherst, $1 billion in education and mass transit spending could produce more than twice the jobs created by military spending. Job creation will help boost the GDP, which will help lower the nation’s debt-to-GDP ratio in many cases.
More Than Half U.S. States Unable to Pay Off Debts
Adding to the problem, a report examining all 50 U.S. states’ fiscal health found that 39 of these do not have enough money to pay their bills. The eleventh edition of the Financial State of the States report, published by non-profit organization Truth in Accounting (TIA), showed that the total debt among all 50 states amounted to $1.4 trillion at the end of the 2019 fiscal year. Furthermore, it warned this amount would still balloon due to the effects of the ongoing coronavirus pandemic.
For the report, TIA calculated states’ taxpayer burden — the amount of money each taxpayer would have to shell out if the state were to pay off its debt — and states’ taxpayer surplus — the amount of money refunded to each taxpayer if in case the state still has leftover budget after paying off its bills.
Based on these calculations, 11 states would be able to pay off their debts: Alaska, North Dakota, Wyoming, Utah, Tennessee, South Dakota, Nebraska, Idaho, Oregon, Iowa and Minnesota. Taxpayers in Alaska, which the report named as the most fiscally healthy state, would be able to receive a $77,400 tax refund.
Meanwhile, five states — New Jersey, Illinois, Connecticut, Hawaii and Massachusetts — made it to the bottom of the other 39 unable to pay their debts. In particular, New Jersey taxpayers will have to pay $57,900 from their pockets to pay off debt in America’s least fiscally healthy state.
The report found that a large portion of debt incurred by states comes from unfunded retirement benefit obligations. These include pension plans and retiree healthcare liabilities. Pension debt amounted to $855 billion, and other post-employment benefits racked up to $617 billion at the end of the 2019 fiscal year.
Bad Policies by States Rub Salt Into Budget Deficit Wound
Forty-nine states require their budgets to be balanced by law; for any deficit, states would have to rely on accounting tricks — and ultimately federal bailouts.
However, borrowing huge amounts of money to pay off debts and keep operations afloat is an equally terrible fiscal decision to make. Take the case of New York City, for example.
New York state, where the Big Apple is located, ranked No. 41 in the TIA’s fiscal report alongside other states unable to pay their obligations. The effects of the coronavirus pandemic and lockdowns mandated by state and local governments brought economic activity to a screeching halt and exacerbated the city’s budget deficit issue.
Even the office of Mayor Bill De Blasio was not spared. To save on costs and address the city’s budget deficit, the mayor’s office originally planned to lay off as much as 22,000 city workers. An August report by the Epoch Times stated that these layoffs did not materialize after labor leaders convinced De Blasio not to ax city workers until state lawmakers approve a long-term borrowing plan for the city. Labor unions have been a historic constituency of the Democratic Party De Blasio is a member of — and the long-term borrowing plan amounting to as much as $5 billion will go to the 22,000 employees who are part of different New York City labor unions.
Before the planned layoffs, New York Gov. Andrew Cuomo did not agree with granting New York City borrowing power — commenting that “borrowing is easy, paying back is hard.”
Cuomo’s words definitely ring true in this scenario. Borrowing is easy, paying back is hard — especially when least fiscally healthy states such as New York and New Jersey resort to bad fiscal measures such as borrowing even more money and hiking up taxes on the rich.
Find out more about individual state debts and measures to address the problem at Debt Bomb.
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