Government Spending

Bottom Line Up Front:  You have to balance your checkbook, and so should the government. We cannot sustain a national debt.

Everyone has budgets…everyone.  When your budget is tight, you cut back on a few things, or maybe delay making a few purchases in order to make ends meet.  You might also pick up another job, or borrow money if you can. In the end, somehow, you have to make ends meet.  The government needs to do that, too.  

But unlike you, the government doesn’t really know how much money it is going to make year to year, or how much they can spend before they have to make the plan to spend it.  Congress works on a budget plan and must pass it before taxes are due, so they don’t really know how much money they can afford to spend.  When the economy is good and more people have better paying jobs, more taxes come in, and the government can collect more than they spend.  When the economy is bad, or people are under employed or not employed, there will be less tax money than the budget has already promised to spend, creating a deficit.

Imagine your friend Bob is coming over to return $100 he borrowed from you.  To celebrate, you order a pizza that will arrive sometime after Bob does, and you are planning to pay with the money Bob is bringing.  But, Bob had to fix his car, so he only has $10 to give you right now. Your Pizza is going to cost $30, which means you have a problem. You might you do the same thing that the government does, and pull out a credit card to pay for the pizza.  The balance on that credit card is like the national debt.  

When the country has more income than expected because more people are working and paying taxes, or more people are getting better jobs and paying more in taxes, you pay down the balance on the national debt. When times are tough, Congress puts more purchases on the national credit card, which ratchets up the national debt.

But debt, just like your credit card, costs additional money in the form of interest. Yes, we pay interest on the national debt. Just like your credit card, the interest adds to the debt. Right now, we are close to $20 Trillion (that’s $20,000,000,000,000) in debt made up of what we’ve over-spent plus interest.

The US actually owns most of its own debt, because Congress borrowed money from other agencies (like Social Security). I don’t know about you, but it really bothers me that Congress borrowed all of that money from us by taking money from Social Security

It can be tricky seeing the differences between total debt and percentage of foreign debt, and describing the debt in general can be confusing.  A favorite tactic of politicians is to make a point about how how much the debt has grown under one administration or another.  But, that debt is made of both what we overspent, and the interest we incurred.  A better way to look at it is to see how much debt was added from over spending during a particular administration rather than just looking at the total debt.  

Understanding how interest adds to our national debt helps explains how the two statements, “We increased the national debt” and “We lowered national spending,” can both be true at the same time.  Again, it is like your credit card…you can reduce how much you put on it month to month, but because there is interest gathering, you are still getting further and further in debt. Based on the Treasury Department’s analysis, (NPR created a chart showing both), the over-spending (deficit) and the total debt (over-spending plus interest) looks something like this:

How do we get out of debt as a nation?  The same way you do with a the credit card.  First, we need to be realistic in the estimates for growth and income.  We can’t plan a budget that anticipates 10% growth in the economy when it has never grown more than 3% (and the leading economic indicators suggest that we won’t have any growth at all in the immediate future).  In lean years, we have to make a lean budget.  Second, when there is a surplus, we need to pay down the national debt.  Third, when there is no debt, because we have paid it off (and we have managed to do that before – it is possible) we need to keep a surplus and GAIN interest to protect us from going into debt again.

Getting more income from taxes (and therefore paying down the debt) is a discussion for the tax plan issue portion of this website.