While not an item from the Chillicothe Gazette, this is one of the most important topics our nation faces. Because of that, I thought it was important enough to cover.
During his interview with the U. S. Secretary of the Treasury (Steven Mnuchin), Bret Baier made a couple interesting statements regarding the level of our nation’s debt.
- Our debt will be $27 trillion at the of fiscal year 2020.
- The CBO (Congressional Budget Office) estimates that our Debt to GDP (Gross Domestic Product) will approach 100%.
In fact, I checked the CBO’s website and found their projections for the end of 2020 (and the following ten years). They are projecting a ratio value of 98.2% If you do the math, that would seem to indicate that they are projecting that our GDP will finish the fiscal year (9/30/2020) at more than $27 trillion. But they aren’t. They are projecting the GDP to finish the year at $20.6 trillion. That would seem to be a Debt to GDP ratio value in excess of 130%? Can both of his facts be true? What are we missing?
What are we missing is the fact that the CBO isn’t calculating the level of our Debt to GDP, but the level of only a portion of our debt, called Public Debt, to GDP. So what is the portion of our debt they aren’t including? It’s the portion that is owed to the various government trust funds. The largest of that debt is the amount owed to the Social Security Trust Fund at nearly $3 trillion dollars.
The Social Security Trust Fund does have a balance in it, BUT it has all been borrowed by the General Fund. That’s not a new thing, it has been going on since the beginning of the program. What the trust fund has in place of cash and investments are special government bonds. So the trust fund is full of government debt instruments that are only good as long as the federal government can afford to pay them off. In our current situation the federal government can only pay them off if it can continue to borrow the funds to do that.
So when did the CBO and WH OMB (White House Office of Management & Budget) start reporting our level of Public Debt to GDP rather than Gross Debt to GDP? I looked through my file of WH OMB Budget schedules and found the Public Debt to GDP was first used in their Table S-15 in the 2013 Budget. Prior to that no Debt to GDP ratio was shown.
In 2012 another new item appeared in WH OMB budgets. It is a item labeled “Primary deficit/surplus (-)”. I hope your reaction to seeing that was the same as mine. “What the heck is that?” The primary deficit is the budget deficit excluding net interest outlays. So the obvious questions are “Why would you calculate that? Isn’t net interest a real expense we have to contend with?”
President Obama’s first budget was his 2010 Budget projections. It showed a ten year projected deficit of $7 trillion dollars. His first budget was criticized for having overly optimistic values for the five key assumptions used in the budget projection process. So the 2011 Budget used more realistic values for the five assumptions, but the ten year projected deficit jumped up to $8.5 trillion. Suddenly the concern was the Obama/Biden team wasn’t taking our federal deficit and debt seriously. It wouldn’t be long until our Debt to GDP ratio would reach 100%, long held as the “point of no return”.
To counter that criticism the WH OMB and CBO introduced a new ratio in the 2012 Budget. It was the “primary deficit” or the deficit if you didn’t count Net Interest Outlays. Why would they create a ratio that excluded Net Interest outlays? Because our debt was increasing at an alarming rate and so was the interest expense. Along with that was the concern with our level of Debt to GDP . Gross Debt to GDP had reached 95.8% for fiscal year 2011.
The WH OMB’s 2013 Budget (released in early 2012) included a Debt to GDP ratio in the budget schedules for the first time in history, but rather than Gross (or total) Debt they used Public Debt. Many in Washington still refer to it as the Debt to GDP ratio though it only reflects a portion of our debt. Suddenly, by using Public Debt instead of using Gross Debt, our debt crisis was put off. Our Public Debt to GDP was only 70.3% at the end of 2012 (while our Gross Debt to GDP reached 100%). In fact our Gross Debt to GDP ratio value has exceeded 100% each of the last seven years, reaching 106.9% at the end of 2019. It now appears it will jump to over 130% at the end of 2020.
Over the last several years Democrats have told us there is nothing to worry about. In fact I attended a Senate Budget Committee hearing on our National Debt back in 2015. It appeared that the only Senator that had a real concern over the level of the nation’s debt was Sen. Johnson of Wisconsin. Sen. Sanders of Vermont was the ranking Democrat on the committee. His primary witness told us there was nothing to worry about since we had a much higher level of debt following WWII. Public Debt to GDP was 99.1% and Gross Debt to GDP was 111.1% at the end of fiscal year 1946. So the witness was correct in stating it had been higher. But what he forgot to tell the committee was the fact that during WWII over 80% of all spending was for National Defense. So we were able to dramatically reduce overall spending after WWII by having a significant cut in defense spending. In fact we went from a large deficit to a surplus in one year after the war ended. That was followed the next year by an increase in the surplus!
What he also didn’t tell the committee was the majority of spending that was driving the nation’s current deficits and increase in debt was a category of spending labeled “Payments for Individuals”. You can find information on it in WH OMB’s Historic Tables 11.1, 11.2 and 11.3. At the end of fiscal year 2019 ninety cents of every dollar collected by the federal government was spent on that category and that category doesn’t include the salaries of federal employees! (I’ll address that in a separate column.)
At the end of the greatest challenge the world has ever gone through (WWII) our Gross Debt to GDP ratio was 111.1% and now it will be over 130% and our Public Debt to GDP ratio was 99.1% and now it will exceed 100%. The obvious question is how do we stop it from increasing further!
Maybe the Senate Republicans were right in 1997 when they voted for a Balanced Budget Amendment. Maybe Democrats were wrong for voting against it. Sen. Torricelli (D-NJ) cast the deciding vote that defeated the amendment claiming it was no longer necessary?
Looking back, the only two items from the Republicans’ 1994 Contract With American that didn’t become law were:
- Balanced Budget Amendment
- Congressional Term Limits
Those were both opposed by most Democrats. Imagine if those had passed too!