HomeU.S. National Debt and Tax Policies: The Future of American Fiscal Policy (2013)tbdU.S. National Debt and Tax Policies: The Future of American Fiscal Policy (2013)

U.S. National Debt and Tax Policies: The Future of American Fiscal Policy (2013)

The United States public debt is the outstanding amount owed by the federal government of the United States from the issue of securities by the Treasury and other federal government agencies. US public debt consists of two components:

Debt held by the public includes Treasury securities held by investors outside the federal government, including that held by individuals, corporations, the Federal Reserve System and foreign, state and local governments.
Debt held by government accounts or intragovernmental debt includes non-marketable Treasury securities held in accounts administered by the federal government that are owed to program beneficiaries, such as the Social Security Trust Fund. Debt held by government accounts represents the cumulative surpluses, including interest earnings, of these accounts that have been invested in Treasury securities.

Public debt increases or decreases as a result of the annual unified budget deficit or surplus. The federal government budget deficit or surplus is the difference between government receipts and spending, ignoring intra-governmental transfers. However, some spending that is excluded from the deficit (supplemental appropriations) also adds to the debt.

Historically, the US public debt as a share of GDP increased during wars and recessions, and subsequently declined. For example, debt held by the public as a share of GDP peaked just after World War II (113% of GDP in 1945), but then fell over the following 30 years. In recent decades, however, large budget deficits and the resulting increases in debt have led to concern about the long-term sustainability of the federal government’s fiscal policies.

On April 2, 2013, debt held by the public was approximately $11.959 trillion or about 75% of GDP. Intragovernmental holdings stood at $4.846 trillion, giving a combined total public debt of $16.805 trillion. As of January 2013, $5.6 trillion or approximately 47% of the debt held by the public was owned by foreign investors, the largest of which were the People’s Republic of China and Japan at just over $1.1 trillion each.

The CBO has summarized the cause of change between its January 2001 estimate of a $5.6 trillion cumulative surplus between 2002 and 2011 and the actual $6.1 trillion cumulative deficit that occurred, an unfavorable “turnaround” or debt increase of $11.7 trillion. Tax cuts and slower-than-expected growth reduced revenues by $6.1 trillion and spending was $5.6 trillion higher. Of this total, the CBO attributes 72% to legislated tax cuts and spending increases and 27% to economic and technical factors. Of the latter, 56% occurred from 2009 to 2011.

The difference between the projected and actual debt in 2011 can be largely attributed to:

$3.5 trillion — Economic changes (including lower than expected tax revenues and higher safety net spending due to recession)
$1.6 trillion — Bush Tax Cuts (EGTRRA and JGTRRA), primarily tax cuts but also some smaller spending increases
$1.5 trillion — Increased defense baseline budget and non-defense discretionary spending under both the Bush and Obama administrations
$1.4 trillion — Wars in Afghanistan and Iraq
$1.4 trillion — Incremental interest due to higher debt balances
$0.9 trillion — Stimulus and tax cuts since 2008 (Economic Stimulus Act of 2008, ARRA and Tax Act of 2010)

Several other sources have used CBO data to summarize the results in various ways.



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