Why is the national debt out of control?

John W. Schoen Senior Producer • Profile • E-mail

With the federal government beginning a new fiscal year Monday, the national debt now stands at about $8.5 trillion — or about $540 billion bigger than it was a year ago. Like a number of readers, Charley in Alabama wants to know: who's to blame for this big pile of debt? And how are we ever going to clean it up?

The Republican Party has been the party of fiscal conservatism. Why now is the Republican administration willing to increase the national debt? Will the national debt eventually have to be paid?
— Charley, Magnolia Springs, Ala.

Yes, just like your credit card, the national debt eventually has to be paid. And, just like your credit card, the interest has to be paid now.

But the blame for this mess is shared by both political parties. Now, with midterm elections approaching, you have an opportunity to fix the problem — by choosing a candidate that supports the tough decision process that a solution will require. (More on how to do that on the next page.) And if you don’t vote carefully on this issue, you, too, can share the blame for the debt mess.

The problem starts with the government not being able to live within its means — just a like a shopaholic with a shiny new credit card and an untapped credit line. To fund this overspending (aka federal budget deficits), the U.S. Treasury makes up and sells a fresh batch of IOUs every quarter. Then it uses the cash from the sale to pay off old Treasury debt that's come due and keep up on the interest payments on the rest of the paper that's still out there.

When the Treasury reaches its credit limit, Congress just raises it in the middle of the night when no one's looking. (Wouldn't you love to be able to just raise your own credit card limit whenever you felt a trip to Hawaii coming on?)

As of Thursday, the total national debt outstanding stood at nearly $8.5 trillion — or $8,487,096,306,559.55 to be exact. In August, Uncle Sam’s minimum monthly payment — just the interest on that debt — came to $24 billion. Interest payments alone are now about $400 billion a year, or about about 18 cents of every one of your tax dollars.

Tax (cuts) and spend
The economic debate over the benefits of tax cutting goes way back, but the current round has its roots in the Reagan administration, when the country was just emerging from a prolonged, very painful period of high inflation and slow economic growth. The ultimate goals of Reaganomics were to spur the private economy and reduce the size of government. The thinking behind tax cutting was twofold:

1. It put more dollars in public hands to help boost economic growth.
2. With less money to spend, government would have to get smaller.

Along the way, Reagan and Congress produced the most comprehensive overhaul of the tax code in a generation, which, among other things, eliminated most tax shelters and put Social Security back on a firm financial footing. When the dust settled, many federal programs were cut, and the economy, indeed, perked up. But the national debt kept growing.

Then, in the 1990s, a strong economy and booming stock market generated something of a windfall in tax revenues, and new “pay-as-you-go” rules in Congress required that any new tax cuts be offset by spending cuts (or new spending be offset by new taxes). The result was a few years of budget surpluses. For a short time, those surpluses helped to pay down the national debt, but not for long. By the end of every fiscal year, the debt (when you include government-held debt used to back future Social Security and Medicare payments) was larger than when the year began.

Congress let those “pay-as-you-go” rules expire in 2002, which made their jobs a lot easier. Now they could cut taxes without making the hard — and politically unpopular — choices about where to cut spending. Under these “have-your-cake-and-eat-it-too” budget rules, we now get tax cuts and a $250 million Alaskan bridge to nowhere. Nearly a third of the current national debt has been added since 2000.

Just like the compulsive shopper who takes comfort in keeping up with the minimum monthly payment, there’s no day-to-day crisis. Like that shopper, however, the problem comes when you go to borrow more money. When our maxed out credit card shopper asks for a loan to buy a new car, the dealer or banker will probably get a little nervous after they see just much debt has already piled up.

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