Published 6:00 AM EDT Oct 16, 2018
WASHINGTON – The national debt is $21 trillion and counting.
The federal deficit soared last year to $779 billion and is projected to approach $1 trillion in 2019.
For most Americans, it’s difficult to comprehend a dollar figure that has that many digits. ($1 trillion, when written out in long form, is $1,000,000,000,000. Yes, that’s 12 zeroes.) The numbers are so huge that they almost seem surreal.
But the impact of the rising national debt and federal deficit is very real, even for average Americans, financial experts warn.
So here’s what you should know about the debt and the deficit – and why you should care.
Deficit and debt: What’s the difference?
The terms deficit and debt often appear in the same government reports that spell out the country’s financial woes. But they’re not the same.
Put simply, the deficit refers to the difference between what the federal government spends and the revenue it takes in annually. The debt is the amount of money the federal government must borrow to cover years of budget deficits.
Both are on the rise.
The deficit hit $779 billion in the fiscal year that ended Sept. 30 because tax revenues are not keeping pace with government spending, the Treasury Department announced Monday. That’s a 17 percent increase over the previous year — the highest deficit in six years.
And it could have been worse. The year’s deficit would have been even higher if not for a shift in the timing of certain payments, the Treasury said.
Treasury Secretary Steven Mnuchin suggested that the rising deficit was the result of “irresponsible and unnecessary spending.” But a separate report released earlier this month by the nonpartisan Congressional Budget Office said the jump was fueled in part by the tax cuts Congress approved last year.
As for the national debt, it continues to climb at a staggering pace. Right now, it’s more than $21 trillion and literally soaring by the second. To keep track, you almost need a clock. Luckily, there are several operated by various groups that show just how fast the debt is piling up.
Things haven't always been this bleak. In 2000, the federal government had a surplus of $236 billion and the national debt was less than $6 trillion, according to the Treasury Department.
What’s the impact?
More debt and higher deficits not only harm the economy, they dip into the pocketbooks of average Americans, said Maya MacGuineas, president of the nonpartisan Committee for a Response Federal Budget.
For starters, they drive up interest rates, which leads to slower economic growth. Slower growth leads to lower wages, which results in a lower standard of living for Americans, MacGuineas said.
To pay for years of deficits, the federal government must borrow money. Roughly half of the U.S. debt is held by foreign countries, such as China, Japan and Saudi Arabia. China alone holds more than $1 trillion in U.S. debt.
Borrowing at that level is financially irresponsible, MacGuineas said. “We have a global sugar daddy that is allowing us to borrow at an unsustainable level,” she said.
Why is it unsustainable? Because the more we borrow, the more we pay in interest to those countries.
Interest on U.S. debt is projected to total $7 trillion over the next decade and, by 2026, will become the third largest category of the federal budget, according to the Peter G. Peterson Foundation, a nonpartisan organization dedicated to addressing the country’s long-term fiscal challenges.
“That’s $7 trillion going out on the door,” said Michael Peterson, the Peterson Foundation’s chairman and chief executive officer.
In other words, that’s $7 trillion that could be spent on things like roads, bridges, schools and other programs that benefit Americans every day.
There are other implications, too.
Higher interest rates reduce the amount of private capital available for investments, which hurts economic growth and wages and leaves the U.S. with less flexibility to respond to a financial crisis like the Great Recession of 2008, Peterson said.
The U.S. had relatively modest debt when the Great Recession hit, Peterson said, so that meant the government could direct many of its financial resources into a stimulus package to help rescue the economy.
Remember what happened then? Some $831 billion was spent on tax credits, health care, schools, energy, roads and other construction projects to save jobs and get the economy back on its feet. Financial analysts disagree on how effective the package proved to be in correcting the economy. But many argue that it was a significant factor in the economic recovery.
If the country continues its current path of mounting debt, it may not have the ability to respond to such unforeseen crises in the future, Peterson said. That means another recession could be deeper, longer and more painful.
How does it affect you?
Let us count the ways.
And we’ll start with how much you earn.
Debt not only suppresses economic growth, it suppresses future wages. The Congressional Budget Office projects that average income in 30 years will be $5,000 less per year if the national debt continues its current trajectory. Using that same data, the Peterson Foundation calculates that average income for a family of four will drop by $16,000 over the next three decades if debt rises as projected.
That means you’ll have less money to spend on daily necessities like food, gas and clothing or to put extra money in your savings account or your 401(k).
As we’ve already mentioned, rising debt and deficits can lead to higher interest rates. Higher interest rates mean it will cost more to borrow money to buy a house or a car, paying for college tuition or starting your own business will become more expensive.
Higher interest rates also affect credit card purchases, so expenses like buying gas or groceries or even going on vacation will cost more.
Government programs like food stamps or unemployment benefits that help the most vulnerable in society could face cuts if the government has less money to spend. It also may be more difficult to prop up financially strapped programs, like Medicare, which is projected to run out of money by 2026, and Social Security, which is expected to be insolvent by 2034, unless benefits are cut or other steps are taken to shore up the programs.
Are Americans worried?
Americans view economic issues, such as improving the jobs situation, strengthening the economy and reducing the budget deficit, as less important policy priorities than just a few years ago, according to a national survey in January by the Pew Research Center.
Just 48 percent of those surveyed said cutting the deficit should be a top policy priority for the president and Congress, down from 63 percent in 2014. A year earlier, in 2013, roughly 72 percent of Americans cited the deficit as a top priority, the highest at any point in the past two decades.
Getting people to care about the debt and the deficit is a challenge “because you are basically saying to people that we need to raise taxes and cut spending today so that in the future we don’t have to raise taxes and cut spending even more,” MacGuineas said.
It's a hard sell, she said.
“We would rather have the federal government do a lot of things today and not pay for it rather than put together an economic plan that would help grow the economy in a more continuous and lasting manner,” MacGuineas said. “It’s greedy. It’s those of us who are in charge right now saying we want it all without paying for it.”
“It’s not what our grandparents would have done,” she said. “They said, ‘We want to make sure we leave the economy stronger for the next generation.’”
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