Chapter ThirtyOne Deficits and Debt Deficits and National

Chapter Thirty-One: Deficits and Debt

Deficits and National Debt

Figure 31. 1: U. S. National Debt as a Percentage of GDP Debt held by Public/GDP Source: Whitehouse. gov

Figure 31. 2: Domestic and Foreign Holdings of U. S. Debt Total Debt Source: White House Office of Management and Budget, Economic and Budget Analyses, Table 6– 7

The Debt and its Links to Finance

Table 31. 1: Debt Taxonomy Government Debt Type Gross federal debt Public debt Debt held by public Internal debt External debt Private State and local debt Households and notfor profits Financial sector Non-financial business Description Generally synonymous with the national debt; refers to the total amount of money owed by the federal government to all claimants. Gross federal debt minus debt held in government accounts Public debt minus the debt held by the Federal Reserve The share of the gross federal debt owned by domestic individuals or groups The share of the gross federal debt owned by foreign individuals or groups The total value of all state and local bonds outstanding Includes mortgage debt, credit card debt, and bank loans Total of all corporate debt for financial industry All corporate debt and bank borrowing for non-financial business

Figure 31. 3: Total U. S. Indebtedness as a Percentage of GDP Debt as Percentage of GDP 400% 350% 300% 250% 200% 150% 100% 50% 0% 1965 1970 1975 1980 1985 1990 Non-financial Business Financial Sector State & Local Govts Federal Govt 1995 2000 2005 2010 Households & Non-profits

Figure 31. 4: Interest Payments as a Percentage of Total Federal Outlays 20% Interest Payments as a Percentage of Federal Outlays 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012 Source: BEA. gov

Figure 31. 5: The Interest Rate on 10 -Year Treasury Bonds 16% 14% Interest Rate 12% 10% 8% 6% 4% 2% 0% 1962 1967 Source: St. Louis Federal Reserve Bank 1972 1977 1982 1987 1992 1997 2002 2007 2012

Political Economy of the Debt

Figure 31. 6: Ownership of Gross Federal Debt Federal Reserve 9. 6% Foreigners 33. 5% Social Security 16. 4% Other Government Accounts 14. 8% Private Sector 21. 3% State and Local Govts 4. 3% Source: Treasury Department, 2013

Figure 31. 7: Foreign Holders of Gross Federal Debt Others 33. 9% China 22. 8% Japan 19. 3% Belgium 3. 1% Switzerland 3. 2% Caribbean Banking Taiwan Brazil Oil Exporters Centers 3. 3% 4. 5% 4. 6% 5. 2% Source: Treasury Department, 2013

Figure 31. 8: Debt-GDP Ratios, an International Comparison Japan Greece Italy U. S. A Germany Canada United Kingdom Source: OECD, www. oecd. org

Table 31. 2: EU Deficit and Debt Levels in 2012 (percentage of GDP) Deficit as percentage of GDP Debt as percentage of GDP Portugal -4. 6 124. 3 Italy -1. 7 122. 7 Ireland -8. 4 121. 6 Greece -7. 4 168. 0 Spain -5. 4 87. 9 Source: www. oecd. org

Deficit Projections and Potential Policy Responses

Figure 31. 9: Projected Annual Deficit as a Percentage of GDP Annual Deficit as a Percent of GDP 8 7 6 5 4 3 2 1 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Congressional Budget Office, 2013

Table 31. 3: Selected Budgetary Reforms, Congressional Budget Office Budgetary Reform Potential Budget Savings in 2020 (billions) Reductions in Mandatory Spending Repeal the expansion of health care coverage under the Affordable Care Act Repeal the individual health insurance mandate Raise the age of Medicare eligibility to 67 Raise the full retirement age for Social Security Link Social Security payments to average prices rather than average earnings Limit malpractice torts Increase the interest rates charged on student loans Reductions in Discretionary Spending Allow the sequestration budget cuts to reduce military spending Allow the sequestration budget cuts to reduce non-military spending Limit highway funding to expected highway revenues Reduce funding for the National Institutes of Health Reduce Department of Energy funding for energy research Eliminate certain education programs Revenue Increases Allow all 2001, 2003, and 2009 tax cuts to expire as scheduled Limit tax deductions to 15 percent of income Institute a tax on greenhouse gas emissions Eliminate the tax deduction for state and local income Increase the earnings subject to Social Security taxes Gradually eliminate the mortgage interest deduction Increase the motor fuels excise tax by 25 cents per gallon Source: CBO, 2012 $150 $40 $30 $30 $10 $75 $70 $11 $4 $4 $2 $550 $140 $110 $60 $50 $30