NCPA - National Center for Policy Analysis

TAKING THE NATIONAL DEBT SERIOUSLY

October 13, 2009

The interest on the national debt makes our future unstable.  The exploding size of that burden suggests that, short of devaluing the dollar and taking a large bite out of the middle class through inflation and taxation, there is no way to ever pay down that bill, says Lawrence Kadish, a real estate investor and a trustee of the Claremont and Hudson institutes. 

Consider:

  • As of Sept. 30, 2009, the national debt was almost $12 trillion and interest on that debt was $383 billion for the year, according to the Treasury Department's Bureau of the Public Debt.
  • The Congressional Budget Office on Oct. 7 estimated the 2009 budget deficit to be almost $1.4 trillion (about 10 percent of GDP).
  • In August, the White House Office of Management and Budget (OMB) estimated total government revenues at about $2 trillion; the revenue estimate included $904 billion from individual income taxes.
  • This means the cost of interest on the debt represented more than 40 cents of every dollar that came in from individual income taxes.

Except for a few years in the late 1990s, for decades Washington has spent more than it has taken in each year and borrowed the rest, says Kadish.  Taxpayer dollars that could have paid off debt each year have instead been spent on interest to finance debt.  Unfortunately, that's a vicious cycle that will likely only get worse, says Kadish:

  • The OMB projects deficits of about $9 trillion over the next 10 years.
  • If that occurs, the national debt will be almost $21 trillion by 2019, however, the actual amount could be much higher.
  • The OMB also optimistically projects $13.5 trillion of revenue increases over the next decade, while minimizing the inevitable rise in interest rates that will come with an expanding national debt.

Left unchecked, this destructive deficit-debt cycle will leave the White House and Congress with either having to default on the national debt or instruct the Treasury to run the printing presses into a policy of hyperinflation.  It is against this background that Washington is now debating whether to create social programs it can't afford, says Kadish.

Source: Lawrence Kadish, "Taking the National Debt Seriously," Wall Street Journal, October 12, 2009.

 

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