The good news this morning from the Commerce Department is that the country’s economy grew an estimated 3.2 percent in the first three months of 2010. Our gross domestic product (GDP) — the value of all goods and services produced by an economy — has grown to $14.6 trillion.
Here’s the bad news. While our GDP was rising, our national debt was rising as well —from $12.3 trillion at the end of December 2009 to almost $12.8 trillion at the end of March 2010.
Our national debt is now equal to more than 87 percent of the country’s GDP.
The significance of this figure was highlighted earlier this year by economists Ken Rogoff and Carmen Reinhart. At debt-to-GDP levels above 90 percent, these economists found that a country’s economic growth slows down compared to other countries with less debt.
This means we’re making fewer cars, buying fewer computers, trading with fewer countries, investing fewer dollars, etc. But this isn’t just an abstract problem—it affects all of us, because it means there are fewer jobs, fewer paychecks, and less prosperity to go around.
While the exact reason for a link between economic growth and the 90 percent debt threshold is unclear, one thing is certain — as the national debt gets bigger, even the additional tax revenue the comes in when the economy starts to grow won’t be enough to save us.
Drowning Uncle Sam Illustrates Mounting Danger of U.S. Debt
Washington, D.C. — Today, Defeat the Debt (DTD) launched the second phase of a nationwide advertising campaign to educate the American people about the national debt and the long and short-term personal consequences of the government spending money we don’t have.
The campaign will include new television commercials and full-page advertisements in newspapers across the country. An enhanced website, DefeatTheDebt.com, features a counter showing the national debt rising by the second.
The second phase of this multi-million dollar campaign launches today with a five-billboard mosaic in Times Square. The ad makes the following points:
The national debt at the time the billboard was erected — $12,863,049,415,216.38;
The phrase “America is drowning in debt” is illustrated by an Uncle Sam struggling to stay afloat;
“$500 million in interest payments every day” drives home the urgency of the problem.
“It’s extremely important that people understand just how dangerous America’s national debt truly is,” said Defeat the Debt’s Executive Director Rick Berman. “In just the last year, the debt has ballooned by an additional $1.6 trillion to more than $12.8 trillion, and the consequences of this ever-expanding burden could be disastrous.”
Berman continued, “Americans fail to realize how much money we owe other nations and just how much it would cost us if our bond rating were downgraded as a result of this unsustainable borrowing. If we don’t take action now, we could end up like Greece, where profligate spending has driven the nation to the brink of bankruptcy and threatens to drag down the entire continent of Europe.”
For more information, go to DefeatTheDebt.com. To schedule an interview with a spokesperson, contact Sarah Longwell at 202.463.7650.
Defeat the Debt is a project of the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues that affect the American economy.
Forget giving money to the Red Cross – Uncle Sam has his hand out.
On Tax Day, we mentioned countries – like Greece and the United States – asking for direct donations to pay down the national debt. In Greece, interested “investors” can wire money to a bank account set up by the government of the Hellenic Republic. The US Treasury has made the process considerably more user-friendly, setting up a one-step online donation form.
No word so far on the generosity of the Greeks, but Americans have donated a surprisingly large amount of money – $1.5 million in 2010 alone.
But while it’s pleasant to think that the kindness of strangers could eliminate our budgetary woes, the Congressional Budget Office has a huge pail of cold water to throw on that idea.
Their recent analysis of the President’s budget projected a $1.5 trillion deficit for 2010. This means that donations to the Treasury offset just .0001 percent of our deficit – the debt we accumulated in the first few minutes of the year 2010.
We can’t defeat our debt with voluntary donations, and we can’t do it with budget gimmicks either. To paraphrase James Carville: It’s the spending, stupid! Unfortunately, if Congress doesn’t get wise to this fact, voluntary donations made to the Treasury Department will have to be replaced with mandatory higher taxes paid to the IRS.
Tax Day is April 15th. Hopefully you’ve already filed your taxes, or filed for an extension – lest you receive an unwanted visit from Uncle Sam.
Remember though, as much as you hate writing that check to the IRS, all that tax revenue isn’t even close to covering Congress’ spending.
The federal government’s total revenue for 2009 was approximately $2.1 trillion. That’s income taxes, payroll taxes, corporate taxes – everything.
And yet, that’s also how much we spent on entitlement programs like Social Security, Medicare, Medicaid, and federal employee retirement benefits.
To pay for everything else, from the Pentagon to the space shuttle to the FBI, we had to borrow another $1.4 trillion.
We are running our country on a credit card. And just like the “minimum balance due” keeps rising when you don’t pay your own credit card bill, if our government keeps “charging” it, we’ll all shoulder painfully higher taxes needed to pay the money back.
But here’s an idea: Instead of asking us to shell out more of our salaries to pay for the government’s bloated spending, Congress could decide to spend only what they collect from us in taxes.
Living within our means? It’s a radical thought – but worth serious consideration as we approach $13 trillion in debt this April 15th, 2010.
On the floor of the House of Representatives in September of 2009, U.S. Representative Frank Wolf (R-Virginia, 10th District) challenged Congress and the President to deal with the growing national debt. He urged Americans to “visit DefeatTheDebt.com and learn about exactly how serious the mounting debt and deficits are to every American. […] When will it take us to get serious enough to deal with it?”
We usually speak of budget deficit in terms of year: In 2009, our country ran a $1.4 trillion deficit, and in 2010, the Congressional Budget Office (CBO) projects that we’ll run a $1.5 trillion deficit.
But these budget deficits don’t materialize all at once; rather, they accrue as the federal government spends more money than it takes in, month after month after month.
The CBO keeps track of the federal budget deficit in its “Monthly Budget Review”. As a new feature here on the Defeat The Debt Notes page, we’ll be posting a graphical version of the budget review every month following its release. This way, we can see our country’s “progress” – if we can really call it that – toward the $1.5 trillion deficit for 2010 as it accumulates throughout the year.
Paul Volcker, currently the chair of the President’s Economic Recovery Advisory Board, commented last night that higher taxes or a value-added tax would likely be necessary to bring down the country’s rising budget deficit.
In 1985, Volcker felt differently about this issue; he said it was more important to address the deficit by cutting government spending, not increasing taxes – because those new taxes could hurt the economy.
Whether Volcker had a change of heart, or last night’s comment reflected the Administration’s opinion more than his, it indicates how drastically our country’s fiscal state has deteriorated since 1985.
If Congress’ spending habits don’t change immediately, the crushing new tax burden that Volcker spoke about will surely come to pass. To keep budget deficits under control and maintain current policy, taxes would have to be increased on all Americans, not just the wealthy. One estimate has middle class tax rates rising 48 percent between now and 2019 to meet a 2 percent of GDP deficit target.
But these tax hikes are not inevitable.
We need an end to the charade in Washington, where elected officials one day support costly legislation that isn’t paid for, and then use lofty rhetoric about reducing our debt the next day. To rein in our debt, we don’t need a complex new scheme to send more tax dollars to big spenders in Washington.
Congress just needs to stop spending money we don’t have.