I don't exactly know why but I have had the hardest time finishing this particular post. I completed most of the research and wrote the rough draft well over a year ago. I keep coming back to it but for some reason I just haven't been able to pull it all together into a cohesive essay. Perhaps it's because the subject matter is a bit dry and doesn't lend itself well to my usual sarcastic broadsides. I know it's partly because I think we all agree it's an important issue and I wanted to be sure I had all of my facts straight before spouting off. Better late than never I suppose so here goes.
There are few subjects in our current debate more misunderstood than the size and source of our national debt. What prompted me to seek a better understanding of this were some rather startling claims that some of my more conservative friends were making. “Obama has spent more than all of our other Presidents combined” went one, and more recently “In just three years Obama has increased the size of our national debt 60 percent!” Now that we're in election season hardly a day goes by that I don't hear some form or hybrid of this argument. There is now a well crafted narrative on the Right that our current President has been off on some sort of crazy spending spree. This only reinforces the long held belief by many Americans that Republicans are the more fiscally responsible party and that all Democrats are big spenders. So let's look at that.
Since the President has the bully pulpit and holds the veto pen I'm going along with the Republican premise that the Oval Office holds primary responsibility for increases in our debt. To paraphrase, “the buck stops there.” Besides, the truth is most major spending initiatives have the President's fingerprints all over them and sometimes even his name attached. So there's something I think we all should agree on for the most part.
You may have heard that our national debt (ND) has recently topped $16 trillion. Yikes! While this is true, it's important to understand that there are two separate components of this debt; publicly held debt and intra-governmental holdings (IGHs). This is where it get's a little tricky so stay with me. By law, most federal pensions and any Social Security surpluses must be invested in “special issue” Treasury Bonds. So instead of selling our debt to outside investors, in this case we are in effect investing in our own debt. This actually makes sense when you consider that United States Treasury Bonds are still considered the safest investment in the world.
These investments are what make up the Social Security Trust Fund which currently has a balance somewhere in the neighborhood of $2.6 trillion. Think of it as a giant 401k account invested entirely in Treasury Bonds. Until this past year Social Security had collected more in taxes than it paid out in benefits for almost 30 straight years. While these bonds act as an investment for Social Security they also add to our total debt. At the end of July 2012 the total ND was $15.93 trillion. Of that number, $4.81 trillion consisted of IGHs while only $11.12 trillion was publicly held debt.
While researching this, it became evident that until fairly recently most of the reporting on the ND cited just our publicly held debt, probably because the amount of IGHs were relatively small. This seems to have changed for good during the Bush years and now IGHs are routinely included in the reporting of our total debt. There is some small solace I suppose in knowing that roughly a third of our debt is money we owe ourselves. Still with me? Hang in there.
About Fiscal Budgets
Now, when it comes to determining where the responsibility lies for this enormous debt, it's also important to understand how fiscal budgets work. In the private sector, a company's fiscal year doesn't always correspond to the calendar year. For example, a large retailer's fiscal year may span from the first of March to the end of the following February. This is done for accounting purposes so that holiday sales and returns are taken into full account to give an accurate picture of a firm's fiscal health. The timing varies by industry.
And so it is with our federal government. The federal government's fiscal year (FY) runs from October 1st of the previous year to September 30th of the current year. The first budget that each President is responsible for is actually the first fiscal year budget following his inauguration. For President Obama, that would have been the budget for FY 2010 which began October 1, 2009. President Bush was responsible for the FY 2009 budget which took effect October 1, 2008, a full month before President Obama was even elected. No President is responsible for the majority of debt that accrues during his first nine months in office, that spending was agreed to by the previous administration.
The Republican Revolution. Charge!
So let's look at a little budgetary history. When Carter enacted his first budget in October 1977 (FY '78), the ND stood at $699 billion. Carter was responsible for the '78, '79, '80 and '81 budgets, at the end of which the ND was $998 billion. This was an increase of $299 billion or 43 percent. This was also the starting point for Reagan whose budgets ran from FY '82 through FY '89 and ended with the ND at $2.86 trillion. So Reagan increased our debt by $1.8 trillion or 186 percent nearly tripling it. In the four years following, George H. W. Bush managed to add another trillion and a half dollars so by the time Clinton's first budget rolled around, FY '94, the ND had grown to $4.41 trillion.
Let's recap. In just 12 years, Republican administrations quadrupled our ND borrowing almost $3.5 trillion. And the best was yet to come. Even though Clinton managed to balance the budget his last four years in office (Clinton was responsible for FY '94 - FY '01), our debt grew another $1.3 trillion during his two terms. This was partly because of the massive increase in debt service created by Reagan/Bush and also due to an increase in IGHs as Social Security was collecting healthy surpluses during that time. At the end of the Clinton Administration the Congressional Budget Office estimated that we had turned the corner and were actually on track to significantly lower the ND over the next decade due to Clinton's budget surpluses.
Now here comes the really fun part. George W. Bush began his term with budget surpluses and although the ND had grown to $5.8 trillion the future outlook was bright. All Bush had to do was to continue the policies that had made Clinton so successful, right? RIGHT?? Instead, Bush slashed revenues through two rounds of tax cuts and increased spending exponentially. By the end of his final budget on 09/30/2009, the ND had ballooned to $11.9 trillion. In eight years Bush managed to borrow over $6 trillion, doubling our debt. Most of this borrowed money went towards paying for the Bush tax cuts and to government contractors associated with his two wars. Hundreds of billions were also funneled through Bush's Medicare D program into the pockets of PhRMA.
Between the end of the Ford and Bush administrations, our ND grew $11.2 trillion, 85 percent of which accrued under Republican Presidents. The Bush years are a true glimpse into GOP madness. For years Republicans have talked about "starving the beast" and privatizing Social Security and Medicare. Now they've created a scenario where this actually seems possible. Who cuts taxes while prosecuting trillion dollar wars and giving billions away to pharmaceutical companies? This was either the work of a complete bunch of slack jawed, drooling idiots, or something much more sinister; a well thought out plan to create economic chaos. I'm not much of a conspiracy theorist so I'll stick with the former but it does seem awfully convenient to their cause.
Cleaning Up The Mess
The last three budgets enacted under President Obama have added another $4 trillion to our debt even though the rate of growth in government spending has slowed substantially. It is important to note that the bulk of Obama's deficit spending is the result of much lower tax revenues and necessary safety net and stimulus outlays due to The Great Recession. You can spin this one of two ways. Either Obama has accumulated one-quarter of our ND in just under four years, or, based on his predecessors' doubling and tripling of our debt he still has a long way to go. Either way, I think we all agree we have too much debt. What we don't agree on is how to address it.
Unemployment is without a doubt the single largest contributor to our current deficits. Unemployment, and under-employment, lead to more Americans being thrust into poverty and finding themselves forced to rely on government safety net programs to feed their families. At the same time government revenues, primarily tax collections, are the lowest percent to GDP since 1950. Fewer people working means less income to tax and taxes have been lowered even more in order to help stimulate the economy. We are caught in a vicious cycle.
The Republican answer to all of this is to lower taxes on the wealthiest Americans while slashing programs that aid the poor and middle-class. Their fetish for shrinking government has cost us over 650,000 state and local public sector jobs since Obama took office creating more of a drag on an already sluggish economy. Republicans hold resolute to their peculiar brand of "trickle down" economics ignoring the fact that it just doesn't work.
Democrats on the other hand want to put people to work. The President presented a jobs bill to Congress over a year ago that would have created over a million new jobs building much needed infrastructure. The President's proposal was fully paid for with a very modest tax increase on incomes over a million dollars. He has repeatedly called on Congress to act to get America working again but Republicans have blocked every effort at job creation. It seems they are intent on letting the economy languish until after the election.
Regardless of who you think is at fault for the current standoff one thing is crystal clear; contrary to what you may have heard Republicans are not the party of fiscal responsibility. Republican Presidents have been responsible for significantly more of our national debt than their Democratic counterparts. And what do we have to show for their profligate spending? Crumbling infrastructure, runaway unemployment, a failing education system and a middle-class in decline. Seriously, where did all of that money go? These are questions every American needs to ask themselves when they head to the polls in November.
Most of the data used in compiling this report can be found at TreasuryDirect.gov