Yeah, that's a lot. Put another way, if you had $9.7 trillion and you wrote me a check for $1 trillion, you'd still have $8.7 trillion and I'd be a brand new trillionaire, thank you.
Suffice to say, this projected national debt -- at the equivalent of around 90% of the American economy -- is unacceptable. There's no conceivable justification for digging a hole that deep and thus leaving our national sovereignty to the whimsy of foreign lenders.
Anecdotally, however, I don't know many people who are literally losing sleep over the national debt. For me personally, a laundry list of everyday problems, combined with more immediate political concerns like finding a way to pay for health insurance or making sure corporate agribusinesses aren't poisoning my family tend to occupy much of my ongoing stress level. The national debt really doesn't move the needle for me, even though it probably should. At present, I'd rather see the economy begin to chug along at a sustainable clip without gimmicky bubbles. Only then should we begin to worry about deficit reduction. I don't think I'm alone on this.
The most recent CBS/New York Times poll shows that only 4% of Americans are concerned about the budget deficit and national debt, compared with health care at 13% and 52% for jobs and the economy combined.
Nevertheless, we're clearly witnessing a new wave of political angst from the tea party movement and others about the national debt and government spending. While blame is generally distributed among both Presidents Bush and Obama for good measure, there wasn't nearly the level of outrage about the deficit and debt during the Bush years even though the wars in Afghanistan and Iraq, Medicare Part D and $1.8 trillion in tax cuts contributed to a $4 trillion increase in the national debt under the previous administration. Despite the present-day Republican attacks on "out of control" government spending, none of these plans were paid for -- offset with either budget cuts or revenue increases.
But fair enough. There's a growing national debt and unless something is done to ameliorate the crisis, we're in for a world of pain within a decade or so.
Once again, the CBO reported that President Obama's policies will augment the debt by around $9 trillion by 2020. However, when they broke down the numbers, it turns out it wasn't the health care bill or the recovery act that contributed most to the $9 trillion. It's tax cuts.
Middle class tax cuts.
The CBO wrote that a full $3 trillion of the debt increase over the next ten years will be caused by near term government revenue losses brought about by a combination of retaining modest middle class tax cuts from the Bush years, along with adjusting the alternative minimum tax (AMT) to avoid absorbing middle class taxpayers.
The CBO budget director Douglas Elmendorf wrote on the CBO blog: "Over the next 10 years, those policies would reduce revenues and boost outlays for refundable tax credits by a total of $3.0 trillion." Simply put, deficits resulting from middle class tax cuts would add $3 trillion to the national debt.
In other words, President Obama's biggest crime against the national debt is actually a policy position that's widely embraced by the conservative right and tea party movement. Tax cuts. Two of the words Sarah Palin wrote on the palm of her hand at the recent tea party convention.
So what do we do?
There are very few Democrats on Capitol Hill, and even fewer Republicans (and tea party participants for that matter) who are prepared to suggest allowing the AMT to trap more of the middle class, or to allow the middle class tax cuts to expire. It doesn't take a wizard to determine that such a move would be political suicide. More importantly, raising taxes on the middle class is just bad policy. The American middle class has been under attack since the 1980s. Since the middle 1990s, the top 400 wealthiest earners in America have seen their income spike by more than 400%. Median family income over the last 15 years has only increased by 13%. What we've learned over the last several years is that the only way to reinvigorate the economy with an eye on the longview is to revive the struggling middle class.
Digging deeper into the CBO report, the president's health care reform package and other forthcoming proposals won't add to the deficit or debt because of new Paygo rules forcing Congress to pay for outlays. On Thursday, the CBO noted that the current Senate health care reform bill will reduce the deficit by around $118 billion over the next 10 years. Contrary to arguments from the right, killing this bill won't reduce the deficit or debt -- exactly the opposite, in fact.
I spoke with a Republican source at the Defense Department who told me that defense spending, as you might imagine, is egregiously wasteful.
"It's white collar welfare," he said on the condition of anonymity. "If you [a contractor] do zero work throughout the year, the government will automatically increase your budget by 2-3%. For doing literally nothing."
Of course there's a larger story here, but for whatever reason, we've made defense spending untouchable, and even some of the more liberal members of the Democratic Party are afraid to call for serious cuts or freezes here, even though there's billions to be saved.
We could cut Social Security and Medicare benefits. But that would create a ripple effect of poverty and, secondarily, political chaos for anyone who voted for such an idea. The other option is to privatize these entitlements, allowing the trust funds to be guided by the spastic motion of the stock market. Um. No. No thanks.
The only viable option is to force higher-income earners to contribute to Social Security at a threshold greater than the current salary minimum of around $106,000. I imagine we'll be seeing a proposal like this come out of the president's forthcoming debt reduction commission. At the same time, while the Senate health care reform bill keeps Medicare solvent, I imagine we're also going to see adjustments in terms of who carries the burden of financing it.
In general, chances are we're looking at overall tax increases on American families earning more than $250,000. But contrary to the anti-tax fear-mongering you're probably hearing, an increase in marginal tax rates back to say 1990s levels (or even Reagan levels of around 50%) probably won't force anyone into shanty towns. At the same time, it doesn't make sense to hike taxes for the middle class or to cut programs that are paid for. Ultimately, if we're going to get serious about the debt, we have to make policy choices that are neither contradictory nor counterproductive to ongoing economic strength.