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If you have never seen it before, stop right now and visit the US Debt Clock website. Watching it is strangely mesmerizing and more than a little depressing. It exposes the human brain’s inability to comprehend large numbers. We can look right at them and still not truly grasp their magnitude.
Regardless, we have to try. That’s because…
Each Taxpayer Owes About $400,000
The US national debt has surged to almost $20 trillion (and will cross that line in the next few months). (State and local debt is another $3.2 trillion.) The $20 trillion is the face amount of all outstanding Treasury securities.
It doesn’t include unfunded liabilities like Social Security and Medicare. Those are down at the very bottom of the page, but you can set them aside for now. Break down that national and state and local debt by the number of US citizens, and we find that we each—every man, woman, and child—owe over $70,000.
Worse yet, the total debt per taxpayer is over $190,000 and rising fast. If you include unfunded liabilities, the total debt per taxpayer rises to around $1.2 million, give or take. And that number does not include the unfunded liabilities at the state and local level, including the pensions that are theoretically guaranteed by the states.
Then you can add another few hundred thousand or so per taxpayer, depending on the state you live in. That is the amount of debt and future obligations we’ve allowed our elected representatives at every level of government to accumulate in our names.
The Amount Is Growing
Federal spending is near $4 trillion a year now. It is about $591 billion more than we receive in taxes. But of course, that’s the budgeted deficit. The unbudgeted deficit is something else.
Our government structures things in a way that lets them increase the national debt without having to take the blame for it. For instance, the budgeted deficit was around $1 trillion in the last two years. But the actual increase in the national debt was $2 trillion. There are all sorts of expenses that are not technically considered budgeted items, including student loans, some Social Security spending, and so forth.
But the government still has to borrow the money for those things from the public.
What Is Wrong with This Picture?
The answer is clearer if you take off a few zeros.
Let’s say your income is $335,000 a year—and you’re spending $390,000 a year on top of the $2.3 million in debt you owe from previous years, plus the $10 million you are committed to pay in the future—are you overleveraged?
If you’re adding another $50,000 a year to your total debt in addition to your budgeted spending, I’d say you’re overleveraged. But that’s roughly the federal government’s condition.
Would you still loan more money to someone in that condition? Probably not. But people do so every time they buy a T-bill. And that is just the federal government.
State and local governments spend roughly $2.8 trillion a year. Their debt is relatively smaller than Washington’s, but they are trying hard to catch up. The debt load will get worse at all levels when (not if) the economy goes into recession again. Spending will rise, and revenue will fall.
People and Businesses Run Up Even More Debt
Now, it is easy for us to pour scorn on the government, but we need to look in the mirror, too. We elected these people and let them run up this debt. Why did we do that?
I think in part because we’re so indebted ourselves that we are numb to the reality. Add up our mortgage, auto, credit card, and student loan balances, and we collectively owe lenders over $18 trillion, in addition to the $20 trillion federal debt and $2.8 trillion state and local government debts.
Here is an important point: The debt Congress has run up on our behalf is $62,000 per citizen. But the rest ($56,000 per citizen in debt), we’ve taken on ourselves.
But wait, there’s more! Corporate and nonfinancial businesses have also run up debt—roughly another $20 trillion. Total debt in the US is around $65 trillion today, or roughly a 340% debt-to-GDP ratio.
Sounds Like Italy a Few Years Ago…
Total federal, state, and local government debt is 121% of GDP. Remember when just a few years ago I was talking about whata big problem Italy’s 120% debt-to-GDP ratio was? That’s where we are today.
(I am not sure why the St. Louis Fed’s Fred database discontinued this series in 2015, and I couldn’t find it anywhere else in the database.)
So, before we get into how we should reform our taxes, we need to create a list of all the factors that have a bearing on our decision and then design the reform accordingly.
Otherwise, we are rubbing salt in a very deep wound.
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