April 24, 2017

$20 Trillion and Counting

Any day now the total debt of the United States government will top $20 trillion.

That eye-catching number should prompt all of us to reflect on what the growing debt means for future generations (a lot) and whether our elected officials have a plan to deal with it (they don’t).

The most important thing to recognize about the $20 trillion debt is that its size in dollar terms is not as important as the fact that it is on an unsustainable track.

Two non-partisan agencies, the Congressional Budget Office (CBO) and the Government Accountability Office (GAO), have concluded that unless actions are taken to cut spending, raise taxes or both, the debt will continue to grow faster than the economy.

That’s bad for future generations because it will harm long-term economic growth, greatly increase interest payments on the debt, squeeze out other government spending and make it more difficult to respond to emerging, unmet or emergency needs.

We’re placing a growing burden on future workers and investing less in the economy that will be called upon to support that burden. This generationally irresponsible pattern will continue absent major changes that alter the long-term trend lines rather than simply postpone a crisis.

The $20 trillion figure actually includes two kinds of government debt representing different problems. One component is debt “held by the public” -- debt held by any individual or entity that is not the federal government, such as a mutual fund, an individual investor, a foreign government or a municipal government. As of the end of January 6, 2017, debt held by the public totaled about $14.4 trillion.  

The other component is “intragovernmental” debt, which the government owes itself, such as money owed to the Social Security Trust Funds, the Medicare Hospital Insurance Trust Fund, and the Civil Service Retirement and Disability Fund. As of the end of January 6, 2017, intragovernmental debt totaled roughly $5.5 trillion.

Debt held by the public rises and sometimes falls, depending on the government’s immediate borrowing needs. It represents the cumulative amount of borrowing required to finance budget deficits. Because debt held by the public flows through financial markets, it has more immediate relevance to the economy than intragovernmental debt, which is a matter of internal bookkeeping.

Unlike debt held by the public, the growth of intragovernmental debt does not reflect an imbalance in short-term fiscal policy. It represents a very different problem -- growing long-term obligations that future taxpayers will have to pay for when the Treasury ultimately has to transform these bonds into benefits.

Both components of the total debt are important.

So as the new president and Congress take up the reins of government, they should acknowledge that they have also taken up responsibility for dealing with the $20 trillion debt. They should put forward budget plans that reflect this fiscal reality -- or explain to the American people why they think it doesn’t matter.