Why a higher national debt could mean increased income inequality


Personal Finance Hub
By: Andrew Moran
June 30, 2014

The United States currently faces a near $17 trillion national debt and its annual debt payments are close to half a trillion dollars. It is projected that if interest rates remain the same then the debt will skyrocket to $1.1 trillion in 10 years. Interest rates are expected to rise, which means it'll far exceed a trillion dollars.

Publishing an op-ed piece in Fortune magazine, Bill White, former Houston mayor and chairman of Lazard Houston, argued that the gap between the rich and poor will further widen if the national debt is not solved soon because debt service payments will account for a considerable portion of the budget.

White noted that rising debt levels will provide creditors with access to future federal tax revenues. In less than a decade, debt payments "will absorb 45 percent of all personal and corporate income tax revenues, leaving less available to pay for anything else."

National DebtHe went onto cite former U.S. Presidents Thomas Jefferson and Andrew Jackson as averring their concerns over the chains of federal debt service and how it negatively impacts both the government and the people. White also pointed to former President Franklin Roosevelt, who vetoed various bills because it could hinder future tax revenues.

In the near future, liberals and progressives will need to abandon their stance on the national debt and begin to look at ways of diminishing its burden, White said.

"The fact that the federal government borrowed to provide a floor under the economy during the Great Recession does not justify perpetual use of debt to fund routine federal expenses. It is no more progressive to fund Medicare with debt than to allow insurance companies to discharge medical bills by placing a lien on property belonging to the families of patients," White wrote.

Of course, the $17 trillion national debt omits unfunded liabilities and expenditures. If this is inserted into the equation then the real national debt would be pegged anywhere between $70 trillion and $200 trillion. In addition, when all forms of debt - federal, state, local, corporations and consumers - are considered then it stands at more than $60 trillion.

The issue of the national debt doesn't appear to be taken serious to those in Washington as the bills continue to pile up. For instance, President Obama's budget this year will create $763 billion worth of debt payments over 10 years, funds that could have been utilized for other needs.

With rising interest rates and growing government costs, interest payments will become one of the primary budget items, according to David Walker, the former comptroller general of the Government Accountability Office (GAO), who has been discussing the dangers of too much government debt since 2005.

Standard & Poor's Rating Services recently posted a report about U.S. debt and its credit rating. The organization posited that it doesn't expect any entitlement or tax reforms to take place nor does it believe that Washington will be politically stable ahead of debt ceiling negotiations come the New Year.

"Although both parties agree on the need to lower the government debt burden, the discussions about how this might be achieved are acrimonious. In the near term, including the run-up to the presidential elections in 2016, we do not expect entitlement or tax reform to advance," S&P said. "We believe that renewed debate over the debt ceiling could resume after the midterm elections in November 2014 under certain scenarios. While we expect the discussions about the debt ceiling to be ultimately resolved as they have been, we still see risks that these debates entail."

By the time you have finished this article, the national debt has gone up approximately $1 million.


About this Entry

This page contains a single entry by CFED published on July 1, 2014 2:06 PM.

Inequality Is Not Inevitable was the previous entry in this blog.

One Quarter of America Lives in a High-Poverty Neighborhood is the next entry in this blog.

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