The National Debt, Political Parties and the “Budget Deficit”

Budget deficits seem to be a way of life in the United States. But what is a budget deficit? Does it reflect the increase in total debt in the Country? That would seem to be the most logical definition. If I told you that I owed $5,000 at this time last year and I owe $10,000 now, wouldn’t you naturally assume that I ran a $5,000 deficit over the past year? What if I told you that “my budget deficit” was only $2,000? Would you conclude that I was telling the truth? I hope not.

What is the National Debt? This is the total amount that the country owes. We sell Treasury bills, notes and bonds to raise this money. What is our National Debt? For current and some historical information, go to: http://www.treasurydirect.gov/NP/BPDLogin?application=np As I write this, the most recent date for which there is data is November 28, 2008. The debt was $10,661,174,903,807.68. That’s over $10 trillion, for those of you who get dizzy counting the digits. That’s a lot of money. The census bureau website has a current estimate of the country’s population. Right now, its 305,787,480. The National Debt is currently $34,864.65 per person. We have to pay interest on this debt. During fiscal year 2008, we paid $451,154,049,950.63 in interest. That’s $451 billion.

The White House has asserted that the budget deficit for fiscal year 2008 (ending September 30, 2008) is a bit over $400 billion. During that period, however, the National Debt increased $1.017 trillion. I’ll let you decide whether you think that this is being honest.

Why is there such a discrepancy? Well, there are two major reasons. First, the Social Security system currently produces a huge surplus. These are funds that come into the government that will someday be needed to pay out benefits to retirees. Do we set it aside? No, we spend it. But, we pretend that this doesn’t really constitute “a deficit”. The second main reason is “off budget” items. A huge amount of the money spent on the Iraq War came from “emergency appropriations”. They aren’t part of the budget. So, they don’t add to “the deficit”.

The National Debt increased over $1 trillion, but the Bush White House says that the Budget Deficit is a bit over $400 billion.

Who is responsible for this debt? Well, that’s a complex question. However, perhaps there is some truth to President Harry S. Truman’s statement that “the buck stops here”. If you attribute the debt to the President who was in office when a fiscal year begins, some interesting patterns emerge.

During the first seven years of President George W. Bush’s term, $4.2 trillion was added to the National Debt. President Bill Clinton’s term saw $1.4 trillion added to the debt in eight years. President George H. W. Bush oversaw an addition of over $1.5 trillion in four years. President Reagan oversaw a $1.8 trillion increase in the debt during his eight years. Over $9 trillion of the $10.6 in total debt was accumulated during these last four Presidencies. The administrations of Presidents Reagan, Bush, and Bush have seen the accumulation of more than ¾ of the total National Debt.

However, this may be somewhat misleading as this does not account for historical inflation. Dollars were worth more in the past than they are now. Therefore, perhaps the most useful way to look at the National Debt is as a proportion of Gross Domestic Product (GDP – the total value of all goods and services produced in the country during the year). It is then possible to look at the total National Debt in relation to GDP. This is like looking at your personal debt as it relates to your salary.

Here is the total National Debt at the end of the last fiscal year that began during the Presidencies of our last six Chief Executives:

Nixon. . . . . . . . 34.0%
Carter. . . . . . . . 32.5%
Reagan. . . . . . . 51.0%
Bush 41 . . . . . . 64.1%
Clinton. . . . . . . 57.8%
Bush 43 . . . . . . 65.2%

Notice that during each Republican administration, the National Debt, as a percentage of GDP, increased, and during the Democratic administrations, they declined.