By: Brent Barnhart
on Thursday, March 24, 2011
“We’re broke,” John Boehner said last February during a speech in Nashville regarding the United States’ current financial status. “Broke going on bankrupt.” These bold words from the Speaker of the House seemingly affirm the fears of many Americans as the United States quickly approaches its $14.3 trillion debt ceiling. Such monumental debt raises plenty of questions about what President Obama can and will do next to put the country back where it needs to be financially. Yet the question remains; are we really going broke?
Depends on who you ask.
Yes, we’re going broke. Currently, debt held by the public combined with debt held within the federal government exceeds $14.1 trillion. Roughly $9 trillion of the aforementioned debt belongs to the public, representing debt that is owned by individuals, companies, and governments outside of the federal government. The remainder of the United States’ debt is essentially debt that the government owes itself, whether it’s owed to Social Security (amassing $2.6 trillion worth of debt by itself) or any of the other dozens of government “trust funds.” The grand total comes to roughly $14.1 trillion. Such a number is obviously huge and nearly impossible to comprehend, isn’t it?
But it doesn’t stop there. There’s an additional, often overlooked category of debt which Cato Institute
writer Michael Tanner describes as “implicit debt.” This debt represents the “unfunded obligations” of programs like Social Security and Medicare in which the benefits of the programs are not legally guaranteed, and therefore represent the “softest form” of American debt. Tanner calculates that Social Security’s unfunded obligations now run more than $16.1 trillion, meanwhile Medicare faces obligations of up to $89.1 trillion. Taking this into consideration, our national debt of $14.1 trillion quickly jumps to $119.5. Can we even to begin to comprehend such an amount, which Tanner points out is over 900% of our GDP? “Maybe President Obama will figure out how to turn lead into gold,” Tanner says. “But I don’t think we should make public policy on that basis.”
Case closed. We’re broke. Right?
Remember, it depends on who you ask. In the wake of so much gloom and doom, there’s an equally passionate notion that the country is just fine. But considering the information stated above, how could there possibly be such a case? The fact that the federal government is able to borrow funds at incredibly low interest rates appears to be a point in the United States’ favor, but the general public doesn’t seem too keen on the notion of the country constantly borrowing from China. How about a long-term solution?
A long term solution exists, theoretically, in the form of raising taxes. Michael Linden of the Center for American Progress
points out that the United States is “an extremely low-tax country compared to other economically advanced countries.” Linden also believes that we’re not broke. Far from it, he says.
Based on information compiled over the past five years, the United States ranked 29th of 33 member countries of the OECD (Organization for Economic Cooperation and Development) in total tax revenues. Linden proposes that raising taxes to the level of a country such as Canada (ranked 22nd in OECD’s list of total tax revenues, seven places above the United States), we could see a balanced budget as early as 2015. There’s much to take into consideration with such projections, though, as they are theoretical. Both taxing ourselves further and borrowing more and more seem like unfavorable options for the country, but perhaps it's our only option. Linden stresses that “the government is meeting all of its obligations” financially, and on the other side, Tanner questions how much longer China will continue to let us borrow as they question our creditworthiness.
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What’s the answer to our debt problems? It’s up in the air. Who’s going to solve it? It’s up in the air. Are we broke? The answer seems to be both yes and no, but the fact that we certainly have a problem is indisputable and the American small business
community is worried. Only time will tell how the country goes about solving its debt crisis, but with the debt ceiling looming over us, it appears that time’s almost up.