What is the National Debt
—and What is the Deficit?
Some definitions...just so we know what the problem is.
Please note: the numbers in some of these article can quickly become out of date. Current numbers are always available on the page, The National Debt
Numbers At a Glance.
First, the annual deficit of the United States:
Just like a person, or a corporation, the United States of America uses money for its operations. And just like a person or a corporation, that means it has both income and outlays. The income is derived from various taxes and fees. But of course, the biggest share of it comes from individual and corporate income taxes.
The outlay is what the U. S. spends: for defense, highways, Medicare, et al, etc. There are thousands and thousands of categories of expenditure.
In any year that we collect more than we spend, we have a surplus for the year. But, we have usually spent more than we collected, and we have a deficit for those years.
We had a deficit in seventy of the years of the last century, and every year but one since 1970, because the U. S. spends more than it gets. Let's be honest about this. The government is us. The money comes from us , it is spent by us , and it is spent for us , as individuals. So, the truth is that we get more—and spend more—every year than we pay in taxes.
Now, to the U. S. National Debt:
Whenever we have a deficit year, we borrow money to pay for the deficit. That repeated borrowing becomes the National Debt. There's nothing wrong with responsible borrowing, in times of need. But responsible borrowing isn't exactly what we've been doing. We've been borrowing money—lots of it—nearly every year, and just tacking it on to the debt we already have. And we haven't made any significant payment on that debt since 1969! Our 2008 debt is more than 10 trillion dollars.
Then—there's the interest:
Of course, when we borrow money, we pay interest on it. We pay lots of interest on 7 trillion dollars. In fiscal year 2008 (which began october 1, 2007) we paid more than $450 billion in interest. Our only larger expenditures are for Defense, Social Security and for Health and Human Services. Today, interest is costing each of us over $250 per month—in real money, paid right out of our pockets.
(Interest figures can vary widely month-to-month; see the National Debt Numbers at a Glance page for the most recent figures.)
How did we get here?
The Wreckage of the Past
Deficits aren't new. We've had deficits throughout our nation's history. In the past hundred years, we incurred large deficits (puny by today's standards) during and right after World War One. Then we had surpluses from 1920 through 1930. Then, from 1931 through 1946, we had deficit years again, first because of the Depression, then because of World War Two. But after WWII, we failed to return to living by our means, as we had done after WWI.
We had only eight surplus years from 1946 through 1969—and only one year of modest surplus since. The deficits were relatively small though, until 1975. In that year, we incurred a deficit almost as large as that of the worst war year, 1943. Then, beginning in 1982, due at least in part to a large tax cut, our deficits mounted to annual amounts about four times what we'd incurred during the WWII years.
A year or two of deficits, even large ones, aren't necessarily dangerous. What has become problematic is the accumulation of very large deficits, year after year. That accumulation has created our enormous debt.
Now it's a vicious circle:
In most recent years, we actually would have had enormous surpluses if we didn't have our huge debt. That's right. Until the Iraq war costs began mounting, we were operating the U. S. government on a pay-as-we-go basis, except for the interest on the National Debt. Even with the war, interest on the debt is the major problem now. But the only way we can reduce the interest is to reduce the debt. And the only way we can reduce the debt is to begin paying it off. And the only way we can pay off the debt is to sustain significant surpluses.
And how does one maintain a surplus? One must spend less than one receives. So we must reduce our governmental spending—and continue to pay significant taxes. No other solutions are possible. It's simple arithmetic, admittedly involving some incredibly large numbers. Tax cuts don't pay off debt. Tax cuts don't even put money in our pockets, because they increase and prolong the mammoth interest payments we are already making.