America's massive debt has come back to bite us
By Antony Davies & James R. Harrigan
Published: Saturday, Dec. 29, 2012, 8:04 p.m.
Politicians once again are debating the debt ceiling.
The reason we teeter at the edge of a $16.4 trillion-high fiscal cliff is that politicians can't stop spending money that we don't have. Congress has raised the debt ceiling nearly 80 times since 1962. Most recently, the Treasury secretary has suggested doing away with the ceiling entirely.
At present, every American man, woman and child would have to pony up $52,000 to cover our massive debt. All 313 million of us. Although the government won't send each of us a bill for $52,000, Americans will pay the debt in five increasingly awful ways.
The first is in a reduction in public services.
Washington currently pays more than $400 billion a year in interest. Out of every dollar of tax revenue the government collects, 17 cents goes to paying interest on the debt. At the current rate of spending, that figure will rise to 25 cents of every dollar within the next decade. The greater the debt is, the higher the interest payment. The higher the interest payment, the less the government can spend on public services.
The second way Americans pay for the debt is in delayed retirement and lower wages.
As debt grows, the Federal Reserve will come under increasing pressure to keep interest rates low. The government currently pays about 2.6 percent interest on its debt. Just five years ago, it was paying 5 percent. If interest rates returned to 5 percent, the government's annual interest expense would double. So, we pay for debt by enduring artificially low interest rates. Sure, low rates mean that our mortgages are cheaper. But, low rates also mean that seniors can't afford to retire because their investment savings earn such low returns. This increases competition for jobs, which lowers wages for younger workers.
The third way Americans pay for the debt is through higher taxes.
The more the government pays in interest, the greater is the deficit. The greater the deficit, the more political pressure there is to raise taxes. The Bush tax cuts, set to expire in January, are a good example. The Urban-Brookings Tax Policy Center estimates that, if the tax cuts expire, almost all middle-class households will see their tax bills increase by more than $3,000 a year.
Inflation is the fourth way Americans pay for the debt.
The inflation comes when the debt is so large that the government can no longer tax or borrow enough to pay its bills. When this happens the Federal Reserve will print money to pay for government expenses. They call it “quantitative easing” but printing money causes inflation, no matter what it is called. Americans will pay for the debt by paying higher prices for everything they buy.
The last option the government has in its arsenal is cutting promised Social Security and Medicare benefits.
Politicians won't admit that they are reneging on their promises to senior citizens but they have done so in the past and will do so again. For example, Social Security retirement benefits used to be tax free. In 1983, Congress changed that by requiring many senior citizens to pay income tax on their benefits. In 2000, Congress raised the retirement age for the first time since Social Security was instituted. Politicians described these changes as “tweaks” to ensure Social Security's continued viability.
But for older workers, the government was reneging on its promises. As the debt grows, expect to see a lot of this sort of sleight-of-hand legislation.
The $16 trillion debt is as serious as a heart attack. Each of us owes $52,000. And we will pay. No rhetoric or gimmick will change that. Fewer public services, lower wages, delayed retirement, inflation, taxes, broken promises — this is what we will pay because our government lives beyond our means.
Antony Davies is associate professor of economics at Duquesne University and an affiliated senior scholar at the Mercatus Center. James R. Harrigan is a fellow of the Institute of Political Economy at Utah State University.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Five years later, Crosby wants another Cup win
- Jailed Hribal ‘fine,’ but family ‘terrible’ as answers in stabbing sought
- Starkey: Fleury’s future at stake
- South Fayette parents express dissatisfaction with handling of bullying
- Penguins’ Malkin expects to play in Game 1
- Community turns out for Franklin Regional students’ return to class
- PNC posts 7 percent rise in 1Q profit
- Men charged in Washington Co. girl’s slaying to stand trial
- Pirates notebook: Wandy Rodriguez experiencing decline in fastball velocity
- Hempfield Area superintendent, business manager quit
- Blue Jackets confident as they wade into postseason