Where Does U.S. National Debt Come From?

Where Does U.S. National Debt Come From? [Infographic]

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With President Obama and GOP leaders calling for cutting the budget by trillions over the next 10 years, it is worth asking how America got here — from healthy surpluses at the end of the Clinton era, and the promise of future surpluses, to 9 straight years of deficits, including the $1.3 trillion shortfall in 2010. The answer is largely the Bush-era tax cuts, war spending in Iraq and Afghanistan, and recessions.

“Despite what antigovernment conservatives say, non-defense discretionary spending on areas like foreign aid, education and food safety was not a driving factor in creating the deficits.” writes NY Times. “In fact, such spending, accounting for only 15 percent of the budget (see the chart here), has been basically flat as a share of the economy for decades. Cutting it simply will not fill the deficit hole.”

To explain the impact various policies have had over the past decade, shifting us from projected surpluses to actual deficits and, as a result, running up the national debt, the White House has developed an infographic (click to enlarge) for you to review and share.

As you can see, the White House have also included a quote from President Obama’s speech last night that sums up the basic issues: “For the last decade, we’ve spent more money than we take in. In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug program were simply added to our nation’s credit card.”

“As a result, the deficit was on track to top $1 trillion the year I took office. To make matters worse, the recession meant that there was less money coming in, and it required us to spend even more – on tax cuts for middle-class families to spur the economy; on unemployment insurance; on aid to states so we could prevent more teachers and firefighters and police officers from being laid off. These emergency steps also added to the deficit.”

“Because neither party is blameless for the decisions that led to this problem, both parties have a responsibility to solve it,” Obama added.

A few lessons can be drawn from the infographic. First, the Bush tax cuts have had a huge damaging effect. If all of them expired as scheduled at the end of 2012, future deficits would be cut by about half, to sustainable levels.

Second, a healthy budget requires a healthy economy; recessions wreak havoc by reducing tax revenue. Government has to spur demand and create jobs in a deep downturn, even though doing so worsens the deficit in the short run.

Third, spending cuts alone will not close the gap. The chronic revenue shortfalls from serial tax cuts are simply too deep to fill with spending cuts alone. Taxes have to go up.

In future decades, when rising health costs with an aging population hit the budget in full force, deficits are projected to be far deeper than they are now. Effective health care reform, and a willingness to pay more taxes, will be the biggest factors in controlling those deficits. [via The White House Blog, Pew Charitable Trusts and NY Times]