THE NATIONAL DEBT
Our government borrows $3-4 billion every DAY to keep things running. For the fiscal year that ended September 30, the government spent $1.1 trillion more than it received in revenue (mainly taxes). The total accumulated debt that the US owes to other countries that have bought US Treasury notes (China is the biggest purchaser) and itself (creative accounting!) is $16 trillion.
This year’s deficit is $200 billion less than last year, but as an October 6-7 Wall Street Journal editorial put it, “that’s like fixing a leaky faucet on the post-iceberg Titanic”. And there were specific reasons the debt was a bit smaller:
* The administration is converting short-term debt into long-term debt to take advantage of low-interest rates. (i.e. We borrow more money that will not need to be repaid for 10-20 years, and use it to pay off the debt due right now.) That seems like a wise move – like refinancing your mortgage. Except the government does not make monthly – or even yearly – payments on its debt. So all the money to repay those long-term Treasury notes will come due under some other administration 10-20 years down the road, creating another crisis.*
* Tax receipts rose 6%. (Corporate tax revenue went up 34%, personal income tax revenue 3%.) The same Wall Street Journal editorial cited above suggested that this shows that it is better to improve the government’s financial health with faster growth rather than with tax increases.*
During last week’s debate, President Obama and Mitt Romney were each asked to tell how they would address the debt problem.
Mr. Obama began with the same litany he has used for the last 3 years: he inherited debt from the Bush administration and his administration had to take emergency measures to save a failing economy. He claims to have cut 77 government programs that were not effective or duplicated others. He also said $1 trillion had been cut from the discretionary budget.
(Neither Romney nor the moderator challenged the President with this question: If your administration has been so fiscally responsible, how come the debt has increased $5.54 trillion during your term? Our national debt has tripled during the terms of the two most recent presidents. It was about $5.6 trillion when Bill Clinton left office, after 200+ years of American history. The George W. Bush administration added almost $5 trillion in eight years. And then Mr. Obama increased it more than another $5 trillion in the last four years. This is a seriously dangerous trend.)
The President also put forth a vision to cut $4 trillion from the debt over 10 years. (Somehow I can’t be impressed that he wants to cut $4 trillion in 10 years after he increased it $5 trillion in 4 years. That will leave the nation’s perilous financial situation unchanged.)
Mr. Obama’s debt plan would include $2.75 in spending cuts for every dollar the government increases revenue (read: taxes). He says increased revenue is essential to reducing the debt. (Mr. Obama has criticized Romney for not providing details of his tax plan – rather hypocritical when the President has not given details of his debt reduction plan. He has said which income levels would see tax increases, but not how much. He has not said what spending cuts would be made.)
Romney said the debt is a moral as well as financial issue. Leaving so much debt to future generations is not moral. He wants to reduce the debt by cutting spending. He said that for each expenditure he would ask, is the program critical enough to borrow money for?
Romney’s plan would make cuts to different departments of government by attrition: some programs that expire would not be renewed, employees would decrease as existing ones leave or retire. He would also replace the Affordable Care Act (Obamacare) with less expensive measures and would defund PBS television.
(There has been an outcry over PBS funding – and many jokes since Romney mentioned Big Bird of Sesame Street fame. PBS may have needed support when first instituted, but not now. Government funding is only a small part of the PBS budget. They receive most of their money from corporations and “people like you”, as they say during the 3-4 fundraising sessions each year. PBS is worth $350 million and received about $200 million from the sale of Sesame Street merchandise in 2011.)
Romney proposes to send Medicaid funding to the states and allow state governments to administer the program. Mr. Obama claims that moving Medicaid to the states would cut Medicaid by 30%. But Romney advocates a formula that keeps funding at the current level, plus the rate of inflation, plus 1%, which seems like it would provide adequate funding. (If we could focus on helping people improve their financial situation, Medicaid spending would go down.)
* Information from the Wall Street Journal, October 6-7, 2012 edition.