by John Hawkins | October 12, 2009 10:12 am
I know, I know. Yet another article about how scary our debt is. You’ve heard it a thousand times. Yet and still, my friends, these numbers beg for further consideration:
As of Sept. 30, 2009, the national debt was almost $12 trillion and interest on that debt was $383 billion for the year, according to the Treasury Department’s Bureau of the Public Debt. The Congressional Budget Office on Oct. 7 estimated the 2009 budget deficit to be almost $1.4 trillion (about 10% of GDP). In August, the White House Office of Management and Budget (OMB) estimated total government revenues at about $2 trillion. The revenue estimate included $904 billion from individual income taxes. This means the cost of interest on the debt represented more than 40 cents of every dollar that came in from individual income taxes.
Except for a few years in the late 1990s, for decades Washington has spent more than it has taken in each year and borrowed the rest. Taxpayer dollars that could have paid off debt each year have instead been spent on interest to finance debt. Unfortunately, that’s a vicious cycle that will likely only get worse.
The OMB projects deficits of about $9 trillion over the next 10 years. If that occurs, the national debt will be almost $21 trillion by 2019. However, the actual amount could be much higher. The OMB also optimistically projects $13.5 trillion of revenue increases over the next decade, while minimizing the inevitable rise in interest rates that will come with an expanding national debt.
During Jimmy Carter’s years in the White House, Treasury yields reached 15%. The 2009 average interest rate on the debt was only 3.2%. With our mounting national debt and budget deficits, it is reasonable to assume that in the near future interest rates on new and refinanced debt could double or triple.
In stark but simple terms, unless Americans are made aware of this financial crisis and demand accountability, the very fabric of our society will be destroyed. Interest rates and interest costs will soar and government revenues will be devoured by interest on the national debt. Eventually, most of what we spend on Social Security, Medicare, education, national defense and much more may have to come from new borrowing, if such funding can be obtained. Left unchecked, this destructive deficit-debt cycle will leave the White House and Congress with either having to default on the national debt or instruct the Treasury to run the printing presses into a policy of hyperinflation.
It is against this background that Washington is now debating whether to create social programs it can’t afford.
Get that? Out of every dollar of income tax, we’re spending 40 cents to pay interest. Note again: that’s just THE INTEREST. Even though we’re spending 40% of the money that comes in from income tax, it’s not reducing the debt one iota.
Point being: the biggest crisis this country is facing is the amount of debt we owe. All other problems combined pale in significance compared to this issue. Health care, Afghanistan, Iraq, terrorism, cap and trade, etc., etc. — they’re all small potatoes compared to getting our spending under control.
Nothing short of an EMP attack, a massive meteor strike, a nuclear war, alien invasion, or some other event that changes all life as we know it would be more important than getting a handle on our debt. It’s that important and it would be great if more than a handful of people in Washington, D.C. seemed to realize it.
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