What the Increasing National Debt Could Mean


If you’d like to see a snapshot of what’s going on with national debt versus revenue, check out the U.S. Debt Clock.

 

While there’s aAs of early May, Congress has doled out $2.4 trillion to help offset the economic impact of COVID-19. But that money goes straight to our debt tab. lot moving on one screen, you can take a look at individual blocks to see how much the U.S. takes in via tax revenues compared to what it pays out in spending — with immediate real-time updates. You’ll also view the average stats about the number of people in the workforce, median income and average debt based on total numbers. It’s fascinating and worth a look.1

 

This snapshot is important for two reasons. First, it gives you an idea of how much money the federal government needs to operate, and how shy of those numbers it takes in via tax revenues. This is the difference between the national debt and the national deficit. The debt is what we already owe, just sitting there accumulating interest charges.2 The deficit is the amount we spend minus what we earn, which continues to grow every year.

 

The second reason this is important is because it’s a reminder of how we must mind our own financial picture as individual households. Right now, America is spending more than it earns. The key to maintaining a balanced budget is to spend less than you earn. Take a good look at your own finances to see if that’s true for your household. Bear in mind that saving for retirement and other big-ticket expenses go under the “spend” column. So, if you’re not saving sufficiently for these goals, you’re either not earning enough money or your expenses are too high. If you’d like some suggestions on how to leverage your earnings to work harder toward your goals, we’d be happy to take a look for you.

 

As of early May, Congress has doled out $2.4 trillion to help offset the economic impact of COVID-19, including bridge funds for individuals, small businesses, large industries and the more than 40 million Americans forced out of work.3 That money is not subsidized by tax revenues. It goes straight to our debt tab.

 

For perspective on how much control a presidential administration, or even Congress, has on the national debt, consider the first three years in office for Barack Obama and Donald Trump. Under Obama, the debt grew by $5 trillion dollars to a total of $15.6 trillion. Under Trump, another $5.2 trillion was added to a total that now stands at more than $25 trillion.4 Each president had to deal with near-unprecedented economic calamities, which demonstrates that neither political party can fully control the factors that require additional government spending.

 

According to projections by the Congressional Budget Office, the U.S. debt-to-GDP ratio will increase more than ever in the not-too-distant future. At its current pace, the federal debt is expected to increase to around 124% of GDP by 2030, compared to the previous record of 106% set in 1946.5

 

Another fallout effect of the pandemic is that, with millions of taxpayers suddenly out of jobs, tax revenues will be greatly reduced as well. This impacts the U.S. deficit. In other words, with the federal government having to pay out more than it takes in, there is less money to fund entitlement programs such as Social Security and Medicare.6 This situation is particularly egregious with millions of baby boomers retiring and tapping the benefits they have worked hard for all their life.

 

 

1 USDebtClock.org. 2020. “US Debt Clock.” https://www.usdebtclock.org. Accessed June 1, 2020.

2 Megan Henney. Fox Business. June 1, 2020. “What is the US national debt, and how does it affect the economy?” https://www.foxbusiness.com/economy/what-is-the-us-national-debt. Accessed June 1, 2020.

3 Jim Sergent, Ledyard King and Michael Collins. USA Today. May 8, 2020. “4 coronavirus stimulus packages. $2.4 trillion in funding. See what that means to the national debt.” https://www.usatoday.com/in-depth/news/2020/05/08/national-debt-how-much-could-coronavirus-cost-america/3051559001/. Accessed June 1, 2020.

4 Eddy Rodriguez. Newsweek. May 14, 2020. “National Debt Has Increased $5.2 Trillion During Trump’s 3 Years as President.” https://www.newsweek.com/national-debt-has-increased-52-trillion-during-trumps-3-years-president-1503864. Accessed June 1, 2020.

5 Kevin L. Kliesen. Federal Reserve Bank of St. Louis. May 26, 2020. “Bad Medicine? Federal Debt and Deficits after COVID-19.” https://research.stlouisfed.org/publications/economic-synopses/2020/05/26/bad-medicine-federal-debt-and-deficits-after-covid-19. Accessed June 1, 2020.

6 Caitlin Emma. Politico. May 19, 2020. “Coronavirus could push Social Security to insolvency before 2030.” https://www.politico.com/news/2020/05/17/coronavirus-social-security-2030-261207. Accessed June 1, 2020.

 

 

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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