US Debt Picture

link here to article

This article has some good graphs which illustrate the US debt picture over time. It also makes several good point on how to think about the debt. The national debt is an accumulation of annual deficits and surpluses. Surpluses are rare. We had 3 surpluses in the Clinton administration (which conservatives, of course, attribute to Reagan's prior policies). They were quickly expunged in the Bush administration by his decision to cut taxes and give the surplus back to the "people". This brings us to a fundamental point. Deficits are a result of an imbalance between tax revenues and government spending. Tax revenues are affected by tax policy and by the state of the economy. Clinton's budget surpluses, for example, were a consequence of a booming economy which increased tax revenues, and a fiscal policy in which tax rates were increased and spending was reduced. The Bush deficits came from a moderate recession which reduced tax revenues and from tax policy which also reduced revenues. The decline in revenues, along with increases in spending, which were supported by GOP congressmen who now view government spending as the enemy, resulted in very large deficits in the Bush administration. The deficits in the Obama administration are primarily the result of the recession which has cut tax revenues severely. They were also affected by a stimulus package which consisted of tax cuts and an increase in government spending. The Bush tax cuts have also been extended into the Obama administration.

Since the national debt is an accumulation of past deficits, it has increased substantially primarily as a result of declining tax revenues produced by recession and tax policies initiated in the Bush administration. Moreover, it will continue to increase as long we have high unemployment and low growth in tax revenues. The only good news is that the government is able to borrow at low interest rates and this has kept the cost of debt service down.

The real national debt problem, however, is not our short term budget problems which can be improved by an improvement in the economy. The long term, problem is that government spending on healthcare will increase for two reasons: an aging population consumes more healthcare and healthcare prices are inflating at around 7% annually (which means they will double every 10 years). The Ryan plan for reducing the longer term national is based on shifting half of the burden of Medicare price inflation to retirees and away from government, and by turning Medicaid over to the states in block grants which fixes the federal contribution to Medicaid which is shares with the states. He also repeals the Obama healthcare reform bill which extends Medicaid to 16 million who are now uncovered by health insurance. His plan does nothing that healthcare economists believe will cut the rising cost of healthcare to Americans. The Ryan plan also cuts non-defense federal spending to levels that few believe to be possible. He also plans further cuts in taxes that primarily benefit the wealthiest Americans who receive a good share of their income from capital gains, dividends and interest.

Few believe that the Ryan plan will become law but the vision that it paints for the future is the conservative vision for the future of an America with less government provided support for ordinary Americans and more benefits for those who need them the least. A progressive plan for the future has recently been released which will be discussed in future post.