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Debt? The United States Has Debt?

Michael Tanner, senior fellow at the Cato Institute writes in an op-ed in National Review Online, "recently a number of liberal commentators have descended into the fever swamps of denialism by rejecting the most basic facts about our debt and deficit. Mind you, they are not arguing about the best policies to reduce the debt — taxe hikes vs. spending cuts — but actually denying that the problem exists at all." According to Tanner:

"Paul Krugman, for example, pronounces the debt problem “mostly solved.” Matt Yglesias of Slate asks, “What sovereign debt crisis? There certainly isn’t one in the United States.” Bruce Bartlett, every liberal economist’s favorite former conservative, adds that “our long-term budget situation is not nearly as severe as even many budget experts believe.”

"Bolstered by a study from the left-wing Center on Budget and Policy Priorities, the debt deniers claim that a combination of economic growth, tax hikes, and projected (but not yet realized) spending reductions have already significantly reduced deficits. They argue that a mere $1.2 trillion in additional tax hikes over the next ten years, and the resulting savings on interest, would enable us to “stabilize” our debt at a mere 73 percent of GDP by 2022.

"Now there’s something to get excited about: stabilizing our debt at an amount equal to nearly three-quarters of the value of all goods and services produced in this country each year. Yippee!"

Tanner begins by explaining what was left out of the CBPP study, writing:

"Left out of this analysis, however, is roughly $4.9 trillion in “intragovernmental” debt, which consists of the debts that the federal government owes to itself, through more than 100 government trust funds, revolving accounts, and special accounts, such as the Social Security and Medicare Trust Funds (worth $2.7 trillion and $344 billion respectively). The combination of debt held by the public and intergovernmental debt yields our current $16.4 trillion in total red ink.

"The debt deniers justify ignoring intragovernmental debt on the grounds that only debt held by the public competes with investment in the nongovernmental sector. Moreover, while interest on debt held by the public is paid in cash and creates a burden on current taxpayers, intragovernmental-debt holdings typically do not require cash payments from the current budget and don’t present a burden on today’s economy."

The entire op-ed is worth reading since Tanner makes several additional points. The CBPP debt stabilization study is available here.

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