HOW TO RACK UP DEBT

By Tom Purcell

“Did you see that the federal government raked in record tax revenues so far this fiscal year? The country must be doing great!”

“Ah, yes, you speak of the Monthly Treasury Statement which was recently released. It says that the federal government generated nearly $2.5 trillion in revenue through the first nine months of fiscal 2015 (Oct. 1, 2014, through the end of June). That is more tax revenue than our country has seen before, but the Congressional Budget Office just warned that the country is not doing so great!”

“It’s not?”

“In its latest Long-Term Budget Outlook for 2015, the CBO reports that ‘The long-term outlook for the federal budget has worsened dramatically over the past several years, in the wake of the 2007-2009 recession and slow recovery.’”

“That doesn’t sound so good.”

“The numbers are sizable and can put a Harvard accountant to sleep, but the CBO makes clear that our long-term budget is unsustainable without drastic cost reductions or tax increases. Put simply, our spendthrift ways are continuing to rack up our debt.”

“Sheesh, you sure are depressing.”

“Sorry, but far too many voters don’t have any awareness of this issue. We have to get the dreary facts out there.”

“I’ll try to be strong. Go on.”

“Look, the CBO says the historical average level of publicly held debt over the last 50 years was 38 percent of America’s gross domestic product. But with all the money we borrowed and spent in the wake of the 2008 financial crisis and all the money we keep borrowing and spending, our debt-to-GDP ratio has shot up to 74 percent. CBO estimates it will hit 103 percent in 2040.”

“That sounds like a lot of debt.”

“The last time government debt was higher than that was in 1945, when it hit 104 percent of GDP, and 1946, when it hit 106 percent.”

“Well, we had to spend lots of dough to win the big one against Nazi Germany and Japan. But now what are we spending all of our money on?”

“The rising growth in entitlement spending. According to CNS News, Keith Hall, the CBO director, said in written testimony that an aging population combined with rising health-care costs will result in government ‘revenues that fall well short of spending over the long term, producing a substantial imbalance in the federal budget.’”

“That doesn’t sound very encouraging.”

“It gets worse. All of the trillions our government has borrowed are being serviced at record-low interest rates. The Federal Reserve has kept them low since the last economic crisis. When those rates reset to historic norms, our debt-service costs will explode.”

“Next time we talk, remind me to bring bourbon.”

“These are not my opinions, but CBO findings I am sharing. The CBO says that to get back to historical debt levels of 38 percent of GDP, we’d have to increase revenue by 14 percent or cut spending by 13 percent.”

“Well, the economic recovery continues to languish. I don’t see politicians cutting government goodies now that so many voters are enjoying them or raising taxes.”

“Well, Hall said if we don’t resolve the challenge now, we will eventually face a crisis. He said that once government’s creditors begin to doubt our ability to repay our debt, interest rates on the debt will have to increase to entice them to buy it. That is the point at which a fiscal crisis will occur and it will ‘have a substantial negative impact on the country.’”

“With your upbeat attitude, you ought to give motivational speeches at business conferences.”