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Why is the national debt $16 trillion?

at 06:00 AM ET, 01/04/2013


The National Debt Clock in New York on Dec. 31, 2012. (JUSTIN LANE/EPA - EPA)

“Our government has built up too much debt. …At $16 trillion and rising, our national debt is draining free enterprise and weakening the ship of state.”

— House Speaker John A. Boehner, Jan. 3, 2013

With a debt ceiling limit looming in the next two months, Congress and the Obama administration appear set to have another bruising battle over spending priorities.

 Before embarking on that course, lawmakers might want to re-read the Standard & Poor’s report on why it reduced the nation’s debt rating after the 2011 deal that ended the last conflict over the debt ceiling. The report offered two key reasons:

 

1) “The downgrade reflects our opinion that the fiscal consolidation plan  that Congress and the Administration recently agreed to falls short of  what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.”

 2) “More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.”

As part of its analysis, S&P assumed Republicans in Congress would never agree to raise taxes, but that actually happened as part of the “fiscal cliff’ negotiations. But S&P was also worried Congress would not fulfill the second half of promised spending cuts — and those have now been deferred for two months.

In any case, S&P was clearly looking for more signs of cooperation on restraining the debt — not confrontation.

As a refresher course, let’s look anew at the sources of this $16 trillion in debt.

The Facts

 While polls indicate that many Americans continue to believe that foreign aid is a large part of government spending, it actually constitutes less than 1 percent of the budget. And, no, the deficit can’t be eliminated by just cracking down on “waste, fraud and abuse.” We once awarded the American public Four Pinocchios for ignorance about the federal budget.

So where does the debt come from? This clever Washington Post interactive feature provides some clues — much of it comes from promises made to keep paying Social Security and Medicare. The programs annually funded by Congress generally have become a smaller share of the U.S. economy, even with funding two wars.

 (An aside: the national debt is made up of publicly held debt and money that the government owes to itself. Boehner’s $16 trillion number is this “gross debt” figure. About $11.5 trillion is public debt and the rest comes from bonds held by Social Security, Medicare and other trust funds. You can have an endless debate about whether these bonds are real or not — read our Social Security primer — but ultimately these are obligations that must be paid with either new debt or general government funds, thus taking away from other programs. There is also dispute over whether gross debt is really the best picture of the U.S. debt load, as economists often focus mostly on publicly traded debt.)

Using the White House’s historical budget tables, let’s look at what has happened to the growth of the debt under various presidents — both the overall debt and the debt that government owes to itself. The figures are for the end of each presidential term, except for Obama. The figure for Obama is as of Jan. 2, based on the Treasury’s debt-to-the-penny Web site.

                                           Size of gross debt           Federal account debt

Before Reagan                           $1 trillion                            $250 billion

Ronald Reagan                          $2.9 trillion                         $677 billion

George H.W. Bush                    $4 trillion                             $1 trillion

Bill Clinton                                 $5.6 trillion                          $2.2 trillion

George W. Bush                         $10.6 trillion                       $4.3 trillion

Barack Obama                          $16.4 trillion                       $4.9 trillion

 While raw numbers are interesting, the more telling statistic is when debt is expressed as a percentage of the overall economy (gross domestic product). We’ve rounded the numbers to keep it simple.

                                             Size of gross debt           Federal account debt

Before Reagan                           33 percent                          7 percent

Ronald Reagan                          53 percent                         12.5 percent

George H.W. Bush                    64 percent                          16 percent

Bill Clinton                                 56.5 percent                        24 percent

George W. Bush                        77 percent                          30 percent

Barack Obama                          105 percent                         31 percent

The Bottom Line

The data show that the growth of the debt in the last three decades certainly has been a bipartisan enterprise, with only Clinton reducing debt as a percentage of the U.S. economy. But even then, debt owed to Social Security, Medicare and the like kept climbing as a share of the U.S. economy.

Moreover, an increasingly large portion of the debt is money that the government owes to itself because of borrowing from large entitlement programs such as Social Security and the Medicare. That’s because the money spent on discretionary programs has generally declined, as a share of the economy, while spending on mandatory programs has soared — and will only consume a larger share of the economy as the Baby Boom generation heads into retirement.

In fact, the debt owed to entitlement programs is now almost as large a share of the economy as all U.S. government debt before Ronald Reagan became president.

Willie Sutton once supposedly said he robbed banks because “that’s where the money is.” By the numbers, some restraint on the growth of entitlements will be needed in order to control the growth of the national debt.

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    About the Blogger

    Glenn Kessler has covered foreign policy, economic policy, the White House, Congress, politics, airline safety and Wall Street.

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