“Our government has built up too much debt. …At $16 trillion and rising, our national debt is draining free enterprise and weakening the ship of state.”
— House Speaker John A. Boehner, Jan. 3, 2013
With a debt ceiling limit looming in the next two months, Congress and the Obama administration appear set to have another bruising battle over spending priorities.
Before embarking on that course, lawmakers might want to re-read the Standard & Poor’s report on why it reduced the nation’s debt rating after the 2011 deal that ended the last conflict over the debt ceiling. The report offered two key reasons:
1) “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.”
2) “More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.”As part of its analysis, S&P assumed Republicans in Congress would never agree to raise taxes, but that actually happened as part of the “fiscal cliff’ negotiations. But S&P was also worried Congress would not fulfill the second half of promised spending cuts — and those have now been deferred for two months.
In any case, S&P was clearly looking for more signs of cooperation on restraining the debt — not confrontation.
As a refresher course, let’s look anew at the sources of this $16 trillion in debt.
So where does the debt come from? This clever Washington Post interactive feature provides some clues — much of it comes from promises made to keep paying Social Security and Medicare. The programs annually funded by Congress generally have become a smaller share of the U.S. economy, even with funding two wars.
(An aside: the national debt is made up of publicly held debt and money that the government owes to itself. Boehner’s $16 trillion number is this “gross debt” figure. About $11.5 trillion is public debt and the rest comes from bonds held by Social Security, Medicare and other trust funds. You can have an endless debate about whether these bonds are real or not — read our Social Security primer — but ultimately these are obligations that must be paid with either new debt or general government funds, thus taking away from other programs. There is also dispute over whether gross debt is really the best picture of the U.S. debt load, as economists often focus mostly on publicly traded debt.)
Using the White House’s historical budget tables, let’s look at what has happened to the growth of the debt under various presidents — both the overall debt and the debt that government owes to itself. The figures are for the end of each presidential term, except for Obama. The figure for Obama is as of Jan. 2, based on the Treasury’s debt-to-the-penny Web site.
Size of gross debt Federal account debt
Before Reagan $1 trillion $250 billion
Ronald Reagan $2.9 trillion $677 billion
George H.W. Bush $4 trillion $1 trillion
Bill Clinton $5.6 trillion $2.2 trillion
George W. Bush $10.6 trillion $4.3 trillion
Barack Obama $16.4 trillion $4.9 trillion
While raw numbers are interesting, the more telling statistic is when debt is expressed as a percentage of the overall economy (gross domestic product). We’ve rounded the numbers to keep it simple.
Size of gross debt Federal account debt
Before Reagan 33 percent 7 percent
Ronald Reagan 53 percent 12.5 percent
George H.W. Bush 64 percent 16 percent
Bill Clinton 56.5 percent 24 percent
George W. Bush 77 percent 30 percent
Barack Obama 105 percent 31 percent
Moreover, an increasingly large portion of the debt is money that the government owes to itself because of borrowing from large entitlement programs such as Social Security and the Medicare. That’s because the money spent on discretionary programs has generally declined, as a share of the economy, while spending on mandatory programs has soared — and will only consume a larger share of the economy as the Baby Boom generation heads into retirement.
In fact, the debt owed to entitlement programs is now almost as large a share of the economy as all U.S. government debt before Ronald Reagan became president.
Willie Sutton once supposedly said he robbed banks because “that’s where the money is.” By the numbers, some restraint on the growth of entitlements will be needed in order to control the growth of the national debt.