Local Opinion: Debt ceiling drama

Re: the June 3 article “Amount of US debt is incomprehensible.”

An excellent opinion piece on the magnitude of U.S. government debt appeared in the June 3 edition of the Daily Star. By themselves the numbers are huge and frightening, and yes, our annual budgets contain large amounts of waste. Politicians are happy to use the size of debt and deficit numbers to support their talking points and ideologies. But unlike the article from June 3, they don’t like to talk about revenue. Revenue, or tax receipts are used to pay for current and past expenditures and entitlements including the interest on the debt, which must be paid to preserve our stellar credit rating as a nation. Politicians don’t like to discuss raising taxes to pay for our obligations when the debt ceiling is an issue. Bad for reelection prospects.

A myth perpetrated by politicians is that the average voter would never manage their household budgets the way the government does theirs. Yeah, they do. Generalizing, the average household runs on debt, both short (e.g. credit cards) and long term (mortgages, car loans, etc). And so long as there is sufficient revenue (wages, tips, bonuses, etc.) to meet current principle and interest payments, everything is hunky-dory. In fact most lenders encourage householders with decent credit ratings (think repayment history) to incur more debt. Most Americans understand the consequences of financing their lifestyles through debt. Either meet your obligations, or find more revenue. Get a raise, a second job, borrow more or default. The U.S. government, however, cannot simply default.

Dampening the drama surrounding the debt ceiling requires a way for voters to consider debt when compared to revenues or some other measure. $31 trillion vs. $6 trillion is not a particularly useful way to think about it. Much of the $31 trillion is long-term Treasury debt in the form of bonds amortized though interest and redemption payments out of the $6 trillion budget. Is there a reasonable way to evaluate the federal government’s ability to manage such large obligations without all the drama?

Other disciplines that deal with impossibly large numbers use a various conventions to keep things in perspective depending on the audience. Corporate CEO’s speak in terms of “earnings per share.” Read the 10k report if you want the details. Astronomers describe galactic distances in terms of “light years,” and not a mind-boggling gazillions of kilometers. This works for incredibly small numbers too. Particle physicists will use Planck units when discussing the quantum world. And when all else fails, scientists, mathematicians, statisticians, economists, et al. will resort to logarithms to bring gargantuan numbers into perspective.

Coming to the point, a generalization about the debt and how we meet our national obligations might lessen the drama. The 2023 projected Gross Domestic Product (GDP) for the U.S. is around $26 trillion, more than four times the projected expenditures. So the central question is whether our GDP will generate sufficient tax revenue to meet a $6 trillion budget for expenditures, which includes a projected $660 billion in debt service for 2023. Will this year’s budget have a surplus or a deficit ?

The final answer to that question is not yet known. However, I feel more comfortable thinking about it in terms of annual debt service being around 2.5% of GDP, or 10% of anticipated tax receipts. That seems manageable without allowing for unforeseen contingencies. The very few numbers used here are easy to Google. And as a layman, I am more comfortable considering debt service and aggregate tax revenue as a function of GDP rather than dwelling on numbers ending in far too many zeroes. The congressional committee staffers will work out the details of how necessary expenditures and pork are allocated.

After all, if the ratios signal too much deficit spending, voters know there are corrective tools. Raise taxes, cut wasteful spending, or borrow more.