STEPS TO PAYING OFF THE U.S. GOVERNMENT DEBT
March 31, 2009
Just as there are steps consumers can follow to eliminate household debt, there are steps government can follow to reduce the public debt burden, say D. Sean Shurtleff, a policy analyst, and Pamela Villarreal, a senior policy analyst, both with the National Center for Policy Analysis.
Lawmakers should stop running perennial deficits that make the problem worse:
- If the government raises taxes in the future, it will slow economic growth by taking money that businesses would have invested.
- If the government prints more money, it will cause inflation and devalue the dollar, leading to lower real disposable incomes.
- If the government drastically cuts its consumption spending in order to meet debt payments, it will have to reduce such services as national defense, infrastructure, education and so forth; for instance, a March 2009 Congressional Budget Office (CBO) analysis of the stimulus bill found that increased government debt will crowd out private investment and reduce the rate of economic growth in 10 years.
Once an individual stops adding debt, the next step is to assess how much has accumulated. According to the CBO analysis of President Obama's 2010 budget:
- The U.S. budget deficit will grow from $459 billion in 2008 to $1.85 trillion in 2010.
- Over the period 2010 to 2019, the deficit will average 5.3 percent of gross domestic product (GDP).
- The U.S. public debt -- government securities and bonds owned by individuals, corporations, Federal Reserve Banks and foreign governments -- will grow from 40.8 percent of GDP in 2008 to 82.4 percent of GDP in 2019; that is, from $5.8 trillion to $17.3 trillion.
Even more perilous are the government's unfunded obligations -- promises to pay more benefits in the future than the government expects to receive in revenues dedicated to funding those benefits. The unfunded obligation for Social Security and Medicare is $101.7 trillion in today's dollars. That is more than seven times 2008 GDP and will grow every year that the programs are not reformed to bring projected spending into balance with expected revenues.
The best economic stimulus policy would be to reduce long-term government debt, including current public debt and unfunded liabilities. This type of responsible debt policy would strengthen the dollar and spark consumer and investor confidence, explain Shurtleff and Villarreal.
Source: D. Sean Shurtleff and Pamela Villarreal, "Six Steps to Paying Off the U.S. Government Debt," National Center for Policy Analysis, Brief Analysis No. 650, March 31, 2009.
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