Third Party & Independents Archives

2004 Election Issues (Public Debt)

As of August 2, 2003 at 03:57:28 AM GMT, every man, woman and child in America owes the U.S. government (on average) $23,158.33 in taxes. The total amount of this public debt, as of the time quoted above, is estimated at $6 trillion, 738 billion, 941 million, 60 thousand, 413 dollars and 31 cents.

Following is a discussion of what this public debt is; what it means for Americans; and what choices voters have in the 2004 election to deal with this enormous sum owed by all of us. This discussion is by no means comprehensive. It would take a book, or a few, to discuss all of the implications of such public debt. Rather, this discussion hopes to provide an overview and guide for voters in making a decision in 2004. Some definitions are in order.

Public Debt, in its simplest definition, is the amount of money the taxpayers of America owe to those who invest in the future of our government. Investors are those persons who buy treasury certificates and government bonds. (I will simply call them Bonds in the rest of this discussion). Government Bonds are nothing more than money borrowed by the government. This money borrowed by the government is described in promissory notes to repay the loan with a stated interest rate. These promissory notes are the actual paper called bonds and certificates. The stated interest rate for the loan to the government represents the amount of money the government will pay to the investor, in addition to the loan amount (principal), as an incentive to the investor to loan their money to the government.

An American in a family of four, who brings home the paycheck, owes those investors $91,849 dollars. In addition to this, that same breadwinner owes those same investors an additional $2,565.75 in interest for this year on that principal. This 6 and 3/4 trillion dollar figure is so large; it is difficult to understand what it means. Yet, its meaning is of grave importance for voters entering the polling booths in November of 2004. (UWSA)

The principal amount, that 6 and 3/4 trillion stated above, does not hurt the economy or the tax payer as long as 1) investors continue to have faith in the American government's willingness and ability to pay it back some day, and 2), the government does not try to buy back that debt. If however, investor's fear the American economy is beginning to slide downward they will seek to redeem their Bonds for cash. In this case, at a time when the government will want to use money to stimulate the economy, it will instead, have to pay that money out to investors cashing in their bonds. This can compromise the government's ability to stimulate a faltering economy. If the government decides to pay off that debt, it will have to raise the cash to redeem the Bonds from investors. The government's primary source of cash is taxes from its citizens. Therefore, taxes cannot be reduced, and will likely increase, if Congress decides to pay down the debt.

Why would the government ever want to completely repay the public debt and zero it out? Two very important reasons come into play.

First there is the tax issue for the tax payer. As long as the debt exists, the taxpayers have to pay the interest on that debt. As noted above, in this fiscal year, every paycheck earner with a family of four is going to pay, on average, $2,565.75 by April 15, 2004. If the government did not have this debt, the government would be able to reduce that wage earner's taxes by this same amount (on average). Therefore, the debt is a very large concern for citizens who want very much to see their federal taxes reduced.

Secondly, the debt greatly reduces the government's options and flexibility in dealing with various international and domestic crises. Contrary to the actions of some in congress, there is a limit to how much the American government can borrow before such debt seriously undermines the American economy. As already mentioned, investors may, in large numbers, cash in their bonds leaving the government strapped for cash. If the government simply prints more money to have more cash, inflation sets in.

Inflation causes prices for basic things like food and housing to increase dramatically as the buying value of the dollar falls. A lower value on the dollar results in lowered profits for small and large businesses and that can result in mass layoffs from work. South American countries experienced such hyper-inflation in the 80's and 90's and their economies have yet to recover from the devastating effects of inflation. So, if the government has a huge debt already, and another crisis comes along to force even more heavy borrowing by the government (selling Bonds), the economy could be seriously damaged resulting in a lowered quality of living standard for most American families.

The interest on the debt is either paid with current tax revenues, or, it is added to the debt by way of the government issuing more Bonds (kind of like borrowing on one credit card to make payments on two others). The government can only pay cash for the interest if tax revenue from tax payers is more than the amount the government is spending.

Currently, the government is running a deficit. That means the government is spending more money than it is bringing in. This year, the deficit is running between 400 and 500 billion dollars. And next year's deficit is projected to be even larger. (FFIS)This would put the national debt at about 7 and 3/4 trillion dollars by election time next year.

So what does this all mean for the 2004 elections?

First, it obviously means we are going deeper and deeper in debt and this trend has to end at some point. If it does not, America will find itself in the same situation as California where the confidence of investors has been so shaken, that California must now promise to pay very high interest rates in order to continue borrowing. This means higher taxes for its citizens in the present, and in the future, in order to pay the higher interest rates and buy back the bonds when they come due for redemption.

Second, it means the debt and deficits are going to be hot potato issues on the campaign trail. The candidates are going to either deemphasize the debt and deficit's importance if they are incumbents, or use them as clubs against their opponents if they are seeking seats of power. It will be a rare candidate who will deal honestly and openly with the public on this issue because it is a complicated issue and candidates like to keep their message simple. Also, because many candidates may not understand the issue well enough to be able to provide the public with a comprehensive detailed plan to deal with the debt and deficit.

Finally, this debt and deficit mean the government is in no position to underwrite social security in 2010 when the bulge in the baby boom generation hits retirement age. Also, it means the federal government does not have the money for a host of other priorities which would be funded, were it not for the debt and deficit. Some of those programs are health insurance for all Americans, Medicare, and Medicaid, shoring up impoverished and dilapidated schools, education in general, worker retraining after layoffs, border security, adequate homeland defense spending, full funding for the Head Start program, and a host of other priorities American voters have.

Economics is nothing more than choosing a small set of spending priorities out of a host of spending choices where there is a limited amount of money. The U.S. government has a very limited amount of money and credit left. Therefore, it must limit its choices as to what it is going to spend our tax dollars on.

When it comes time to vote for a representative, a senator, or the President, in November, 2004, Americans should decide if they believe this debt and deficit spending is harmless, and incumbents have the situation well under control, or not. The Congress controls the spending the government participates in. For the last two years, the President and Congress have agreed to extend the debt ceiling by law, and increase the deficit spending well into the election year. Since, the Republicans have a majority in both houses of Congress; voters will need to decide if they wish to support Republican candidates in light of this information.

It is beyond the scope of this article to cover representatives and senators running in 2004. It is possible though, to represent where the Democratic presidential candidates, The Republicans, and the third parties stand on this issue. Don't expect hard and fast numbers though. Among candidates and politicians, such hard and fast numbers provide a measuring stick for performance. First, let's summarize the Republican position.

President Bush has stated that he believes the revenues will exceed spending once the economy picks up and the surplus can be used to pay down the debt. However, even the Whitehouse has admitted that next year's deficit will likely be larger than this year’s. And it is a fact that this year's deficit is much larger than last year's. Despite all the spin to the contrary, the simple arithmetic fact remains that if one is spending beyond one's income, and then, one reduces one's income, the net result will be greater deficit spending and debt. The President's tax cuts exacerbated the deficit which is adding dramatically to the debt at the rate of $1.72 billion dollars per day since September, 2002.

The Whitehouse defends this action by stating that the economic slowdown which began just before President Bush took office would have resulted in a deeper and longer recession had the President and Congress not enacted the tax cuts. Economists generally agree this is partially true. There is debate as to whether the tax cuts to the wealthiest in America stimulated the economy. Some argue those tax cuts resulted in greater consumption of goods and services, which stimulated the economy. Others argue those tax cuts ended up in investments which, in a slow growth economy, does not stimulate demand for goods and services and thus, does not stimulate the economy.

The Democratic Candidates:

Howard Dean states he would balance the budget which would stop the deficit spending.

Dean also criticized Bush for failing to address the issue of insured Americans while passing tax cuts that have increased the deficit. He said he would repeal part of Bush's tax cuts to pay for the insurance and pledged that his presidency would start with balancing the budget.

"If we don't restore fiscal integrity to our government we will simply not have the dollars it takes to offer the health care coverage America needs."

Regrettably, Howard Dean does not state in specific terms how he would balance the budget and thus end deficit spending. He does not indicate what spending he would cut, nor how much and whose taxes would be raised to balance the budget. He also is not specific on a plan to eliminate the national debt.

Joseph Lieberman states his plan would pay down 1 trillion dollars on the debt over the next 20 years. However, his plan calls for more government spending and tax incentives in the short term to stimulate the economy. This is a similar approach now touted by President Bush as the means to control the deficit. Senator Lieberman also is not specific on how the debt would be eliminated and whose money would buy back that debt over the next 20 years.

Senator John Kerry at least partially addresses this issue on his web site. He indicates he would take a long term approach by investing in the infrastructure that will allow the U.S. to remain competitive in the global marketplace for years to come. He would provide for targeted tax cuts for working families and provide tax incentives to small businesses to stimulate the economy. He would provide support for training and education both for the young and the workforce to insure competitive advantage on the global stage. He says he would invest in technology which implies tax cuts or subsidizing companies inventing new technologies. He indicates he would end wasteful spending in government. Unfortunately, Senator Kerry does not state where else he would cut spending and whom it would affect.

Senator John Edward's position is similar to Kerry's. He is more specific on curtailing spending however. At his web site it states:

He has repeatedly called for delaying additional tax cuts for the wealthiest Americans, and believes the tax cuts for middle income families should be permanent. The Senator has also called for increasing the estate tax exemption to $7 million per family to protect small businesses and farmers, but not a complete repeal of the estate tax.

Senator Edwards called upon Congress to trim the federal workforce outside national security by 10% over the next decade and shut down federal agencies that have outlived their usefulness, and get rid of pork in the budget and close down special interest loopholes.

Representative Richard Gephardt states on his web site that he has been for deficit reduction and repealing the Bush tax cuts. Gephardt is not specific at all about where he would cut spending and in fact, his web site reads like a shopping list for government to spend as much or more than is currently being spent. He states he would increase revenues by providing health insurance which would free up more money by consumers to stimulate the economy.

Senator Bob Graham's web site provides the most detail on how he would increase revenues and reduce government spending. It is a detailed plan and is yet short to read as it is summarized. Essentially, he is for targeted tax cuts, eliminating off shore tax dodges, investing in training and education in the work force and repealing many of President Bush's tax cuts while extending or making permanent some which were targeted to working families. In addition, Senator Graham is specific on infrastructure spending. Despite his specificity, his numbers are incomplete and do not facilitate adding his program costs and subtracting his revenue gains to and from the deficit or the debt.

Representative Dennis Kucinich has the most detailed and specific issues based web site found in this review. While the web site does not provide an overview of his deficit/debt reduction plan, within the specific issues such as military spending, economies, and corporations, are detailed numbers. Within the various issue statements can be found his plan for reducing government spending, increasing revenues, and investing in infrastructure, education and the work force. It may actually be possible to add and subtract his numbers to achieve a net effect of his plan on the deficit and debt. If one assumes a detailed numbered plan is necessary to reduce and eliminate the deficits and debt, Dennis Kucinich appears to be the only Democratic candidate who is doing his homework and fostering informed consent by the voters.

Representative Carol Moseley Braun's and Reverend Al Sharpton's web sites provide no plan or details to address the deficit and debt.

Third Parties

The American Reform Party (ARP). The ARP has on it its platform a very specific agenda for dealing with the deficit and the debt. This party is resolute in ending the debt and passing a balanced budget amendment. The ARP proposes to slash government spending across the board in increments, stop foreign aid of any kind until the debt is erased, and end corporate welfare entirely. In addition the ARP would require all appropriations proposals to be spelled out as to their cost and how such appropriations will be funded, before they may pass to the floor for a vote. Many of their proposals are protectionist and isolationist with regard to America's role in the geo-economic sphere.

The Constitution Party (CP) proposes a complete elimination of the tax system that exists today. Their formula as outlined on their web site is simple. Government spending is funded by import tariffs. To the extent that there is a remaining deficit to fund government activities, each state will contribute to the federal coffers an amount equal to the deficit times the percentage of total U.S. population residing in the state. They also advocate eliminating many agencies now in government and virtually all forms of federally funded welfare.

The Natural Law Party (NLP) The NLP is fairly specific on their web site although, like all of the third parties, there are no numbers to crunch. The NLP calls for boosting worker productivity gains as a means of increasing tax revenues. Also, for lowering taxes to stimulate discretionary spending, and expanding enterprise zones. In addition they call for cutting corporate health costs.

The Green Party (GP) The GP's web site contains a host of issues. The one entitled "The National Debt" addresses the issue with a simple paragraph :

Working people and the small business community are shouldering a disproportionate amount the debt burden. To help make up for our nation's neglect, we support tax increases on mega-corporate and wealthy interests; defense budget reductions (see FOREIGN POLICY); and entitlement reductions to those who can afford reductions most (by "means testing," etc.).

This is indeed a complicated issue and rife with differing viewpoints and interpretations. This fact should not however, intimidate voters from the polls, nor intimidate voters from making up their own mind on the issue based on their best educated guess. The reason is that when it comes to numbers this large, and variables this diverse, educated guesses are all that even the Ph.D.'s have to offer.

The government belongs to the people if the people choose to hold the government responsible to them. Every American who votes in November, 2004, will be acting on their own behalf by pondering a bit on this subject. And afterward they will be well served to come to as rational a decision as they can muster before entering the voting booth. It is after all, ours and our children's pocketbooks at stake.

Posted by David R. Remer at August 8, 2003 08:56 AM
Comment #1562

Let’s make the Iraqis pay for it. What’s that? You mean the money from the oil trade isn’t going to the Iraqi people OR the American people but to oil corporations? Hmm, you don’t say.


Posted by: Stephen VanDyke at August 8, 2003 12:05 PM
Comment #1565

The important thing to remember is that we had a SURPLUS only three years ago. There is so much fiscal irresponsiblity to go around here that it is overwelming. I didn’t think it was possible to destroy an economy so convincingly, so quickly without a plan to do so. War or no war, this is frightenng and there seems to be no remorse or apparent problem with it in the eyes of those responsible. If we ran our personal finances like this we would be forced into bankruptcy court and lectured by a judge for being so irresponsible.

Posted by: JJ at August 8, 2003 01:24 PM
Comment #1578

This is an excellent piece. I like single issue pieces that compare candidate positions on one issue. It is very helpful.

However, you did not address what I consider to be the position of the most important candidate George W. Bush: 1)that tax cuts will reduce deficits in the long run and (more importantly) 2)that historically tax cuts as a percentage of GDP are not significantly high and certainly not higher than they were in the 1990’s. That’s been the mantra of the Republicans, and it is significant that the record deficits has not resulted in a significant fall in the bond market. I’m not saying that I agree with this reasoning, but this argument needs to be addressed when talking about whether deficits are really a problem these days.

Posted by: Robert Nagle at August 8, 2003 05:49 PM
Comment #1584

“If however, investor’s fear the American economy is beginning to slide downward they will seek to redeem their Bonds for cash.

As already mentioned, investors may, in large numbers, cash in their bonds leaving the government strapped for cash.”

I’m pretty sure no federal bonds have this option. The deal is that the lender pays the initial price to buy the bond, then the government pays the coupons (if any) and the final payment at maturity. If bondholders want to cash out sooner, they can sell their bonds on the open market, in which case the government still makes the same payments, only to the new owner of the bond. So, for existing debt, it doesn’t matter what bondholders think or fear; the government has its fixed set of payments coming due regardless.

However, the government is always selling new bonds. If investors worry that the government might default on its bonds (either explicitly or by creating runaway inflation so that the real value of the payments is less than anticipated), the government will get less for its new bonds, i.e. have to pay a higher interest rate on debt as it turns over.

“If it does not, America will find itself in the same situation as California where the confidence of investors has been so shaken, that California must now promise to pay very high interest rates in order to continue borrowing.”

Vermont was in a similar fiscal situation when Howard Dean became governor. Now their bonds are top rated.

“1)that tax cuts will reduce deficits in the long run”

George H. W. Bush addressed that in two words. His description was memorable and entirely correct.

Posted by: Dan Wylie-Sears at August 8, 2003 08:38 PM
Comment #1591


To Stephen: “but to oil corporations?”

Make that Cheney and Bush Cohorts.


“There is so much fiscal irresponsiblity to go around here that it is overwelming”

I couldn’t agree more. And it is because the people are so far removed and disconnected from the appropriations process, I think.

To Robert:

I guess I could have been more emphatic. There is no question that Bush’s economics are paving the way toward an end of Soc.Sec., Medicare and all publicly subsidied transfer payments. By raising the debt ceiling ever higher and arguing it is no problem today, Bush is setting up the day around 2010, when for millions of retiring Americans, it will be a very large problem indeed.

Quite literally, my generation’s Social Security paycheck deductions funded the War in Iraq, and will fill Haliburton coffers for rebuilding Iraq. And there will be no return on my investment in Soc. Sec. when I retire. Clever of them Republicans to come up with cleverly devised transfer payments to Haliburton. Why isn’t Ralph Nader running?


Posted by: DRRemer at August 9, 2003 05:22 AM
Comment #1592

To Dan:

You are quite right about the the physical cashing in of bonds by investors - it doesn’t literally work that way. The net effect is the same, however. The article’s subject was so complicated, I sought ways to both shorten the article and keep the understanding of the system relatively simple. To have gone into coupons and bond trading and inverse price/rate relationships was just beyond the scope of the article.

“Vermont was in a similar fiscal situation when Howard Dean became governor. Now their bonds are top rated.”

True, however, Dean had a flourishing national economy to help him. If terrorism, or conflict elsewhere (e.g. Pakistan - India), or slow global economic growth (or even recession) takes place in the next 12-24 months, there will be no growing out from under this debt in the foreseeable future. The debt will, as I pointed out, also limit America’s flexibility and options to respond to such crises, I believe.

How much of the anticipated growth from tax cuts do you think will be eaten up by higher interest rates brought on by the servicing 7 to 10 trillion dollars in debt?

Posted by: DRRemer at August 9, 2003 05:35 AM
Comment #1597

“How much of the anticipated growth from tax cuts do you think will be eaten up by higher interest rates brought on by the servicing 7 to 10 trillion dollars in debt?”

There is no anticipated growth from tax cuts. Even the Republicans know it’s voodoo economics.

Posted by: Dan Wylie-Sears at August 9, 2003 02:40 PM
Comment #1606

Guess someone forgot to inform the President, eh?
Of course, maybe they did and like so much, he just didn’t get it.

Posted by: DRRemer at August 9, 2003 09:17 PM
Comment #1661

They know it’s voodoo economics, I think even Dubya. But it’s very effective politics, at least in the short run. It helps keep together a coalition of those who want to get something for nothing, those who want to destroy the federal government, and those who want to create a new federal entitlement. Plus it has the political benefit of forcing the Democrats to raise taxes. With politics that good, they don’t care about the economics.

Posted by: Dan Wylie-Sears at August 11, 2003 11:08 PM
Comment #1665

Dan, you raise an excellent point I have recognized but, not thought completely through, until now. The Bush team has so poisoned the economic situation, that the only prudent action for Democrats in 2004 and 2006, is to back off and let the Republican’s take all the credit and heat, for rising interest rates, bloated debt, higher unemployment rates, and stagnating economy.

I would not want to represent the party that took over from the Repub’s to try to correct the situation without a huge mandate from the people willing to sacrifice to get the economy righted again. And that won’t happen until 2008 at the earliest.

If anti-American sentiment grows, the rising middle class in third world countries, which we counted on to become our customers, will have a choice. The EU, China, Japan, Russia, and Asian Pacific Rim trade agreements and growing economies will provide that choice. If they choose non-American, our economy will truly stagnate.

Posted by: DRRemer at August 12, 2003 08:03 AM
Comment #1788

I guess I have more faith in the elites of US politics than you do. I want to win this time around, not only to start mitigating the effects of the current administration’s apocalyptic economic policy, but also to establish the Democratic party as the party of fiscal responsibility. I think a lot of the big money will want to back off the class warfare as it becomes apparent that war is hell, even when it’s just the class war. I think we can win this one, raise taxes, cut some spending responsibly, and come out with a chunk of what used to be the Republican base. Voodoo economics is good policy in the short run, but I think we can cut the short run shorter than they planned on, and do our country and the world some good while we’re at it. It will require some statecraft and some economic good sense. Fortunately, our candidate is a Wall Street man from way back, so he probably has the latter.

Posted by: Dan Wylie-Sears at August 14, 2003 10:26 PM