Our National Debt – Update
I like to keep track of our debt since it the Elephant in three rooms (Oval office, the House & the Senate). It is our most significant financial issue and one which none of our elected representatives are willing to address. The solutions are easy, but it will be painful which is why no “career” politician will pursue them.
Now that the Republicans control the Executive & Congress you would expect that we would start to slow down the rate at which the debt is increasing. If you believe that, then you would be wrong. The National debt is currently increasing at the rate of $1 million every 50 seconds. It now stands at $21 trillion. The annual deficit is actually accelerating vs 2017. President Trump is on schedule to set new budget deficit records:
The Total Actual plus Budgeted (projected) for the next 4 years = $5.683 trillion, almost as much in one term as Obama accumulated in two.
I am not taking sides politically as my view is that both the Dems & Reps are in this together. Ignore what they say, look at what they do. A significant contributor to the runaway debt is the recent tax cut. What we are doing is borrowing the money to fund this tax cut.
President Obama actually did the same thing in 2010:
In 2010, the Obama tax cut (an extension of the Bush tax cut) added $858 billion to the debt in its first two years. Obama increased defense spending, adding as much as $800 billion a year. Federal income decreased due to lower tax receipts from the 2008 financial crisis which was a result of the financial industry’s mismanagement during the President Bush terms.
Tax changes are always just a method of income redistribution. The only real difference is in who gets what. The problem is that we primarily fund these cuts out of borrowings which increases the size of the elephant.
The redistribution formula of the current tax cut is extremely complicated, but in general terms only about 20 – 25% of the funds end up in the pockets of the middle class and overall is the equivalent of a 2% pay increase. The vast majority of the benefit is going to the wealthiest segment and to corporations.
If tax payers had to payoff their portion of this debt it would require over $173 thousand each and it grows larger every day.
A significant measure of the financial health of country is the ratio of debt to GDP. Many were dissing the Greeks when they were facing bankruptcy at a ratio of 1.8 to 1. They were very lucky to have the EU to bail them out. Our current ratio is 1.06 to 1. The most optimistic projections for growth in GPD over the next 20 years is 3%. There are others that predict the new average real growth norm will be in the 1 – 1.5% range. Using a mid-point of 2% (inflation adjusted) and the current growth rate of our debt at 5% we will be approaching the level of the Greek financial status by 2050, if not sooner. Who will bail us out? Our grandchildren? China?