Transcript debt crisis - Pequannock Township High School

Does the U.S
really have a
debt crisis?
http://www.pbs.org/
wgbh/pages/frontlin
e/tentrillion/view/
Introduction
 Federal budget one of most contentious political
issues
 Passed by congress
 Budget battle was for years a “silent war” BUT
skyrocketing national debt makes it more public
and partisan
Current national debt:
16 Trillion Dollars
What is National Debt?
Total sum of money borrowed by the gov’t
from U.S. population, lending institutions,
foreign banks & government's own fundinglike social security
 11.5 trillion owned by public or treasury securities held by
individuals, corporations, federal reserve & local, state,
fed government.
 Rest is from bonds held by social security, medicare &
other government funds.
What is a Budget Deficit?
Occur when the government spends
more than it takes in.
 Last few years have seen annual deficits topping
$1 trillion.
 Due to tax cuts, military spending in Iraq &
Afghanistan and Obama administration's
economic stimulus
What is a Budget Surplus?
Occur when the government takes in more
than it spends.
 There have only been 5 years of surplus
 1969
 1998
 1999
 2000
 2001

Timeline of Debt
 U.S has a long history of debt
 Spiked due to vast military spending of WWII
 Remained relatively constant throughout the
70s
 Reagan administrate saw rising debt due to
large tax cuts and increases in Cold War
defense spending
Timeline of Debt
 Debt up to near 50% of GDP by early 90s
 Clinton administration saw reduction in debt
and biggest government surplus in history.
 Why?
 Reductions in defense spending
 Tax increases
 Congress led budget control measures
 A booming economy
Timeline of Debt
 Bush administration saw large increases in debt
throughout the 2000s due to:
 Sweeping tax cuts
 Entitlement program extensions
 War in Iraq
 War in Afghanistan
 Global financial crisis and economic recession
which followed
Timeline of Debt
 Obama entered office in midst of recession.
 Passed stimulus plan of spending increases
and tax cuts to kick start economy which
added $790 billion to debt
 Despite drawdown of wars, debt as
percentage of GDP increased from 36% in
2007 to 67% in 2011
Timeline of Debt
 2011 elections saw Republicans take control of
House of Representatives behind a platform of
aggressive debt reduction without tax increases
 Battles between fiscally conservative Repubs &
President, who believes next decade will see
debt at sustainable levels, have led to several
high profile economic showdowns in recent years
 Yearly deficit for 2013 projects to be smallest since
2008
Best Path Forward: Competing
Perspectives
 Republicans in congress generally favor major
spending cuts without increasing revenues.
 Democrats typically believe new revenues
(usually through taxes) are necessary along
with any spending cuts.
 Areas of focus for spending cuts also differ. For
example- to cut military spending or
Medicare?
Best Path Forward: Economist
Perspectives
 Some economists argue other issues are more
pressing than the debt
 Since most of debt is money Americans owe to
selves- more spending would be best way to
improve weak economy
 Others favor more supply side approach
 Concerned that if the debt continues growing it
could hurt the governments ability to pay for
essential needs.
 Money owed to foreign countries could also harm
our relations with these nations.
The U.S National Debt is Not a
Crisis
PRO
CON
 Nat’ l debt-mostly money
 Nat’l debt limits gov’t ability to
 Americans need more gov’t
 Without action, interest
 Debt’s nothing new- since
 Foreign gov’t/investors hold half
 Slashing gov’t spending at time
 European crisis demonstrates
Americans owe to selves
spending to aid sluggish
employment
founding
when gov’t is recovering from
economic crisis can throw U.S.
back into recession
pay for what it wants/needs
payments could be $900 billion
by 2022
of debt- risking leverage
speed that fiscal crises can
develop
Reducing Debt Must Involve
Tax Increases
PRO
 Spending cuts in a weak
economy could lead to higher
unemployment & back to a
recession
 Tax increase needed as
Americas do not want cuts to
entitlement programs like
Medicare or social security
 Aging baby boomers place
demand for increase revenue
to fund entitlement programs
 Only fair to ask all- especially
wealthy- to contribute their fair
share
CON
 Government has spending
problem, not revenue problem
 Tax revenue expected to be at
record high (not adjusted for
inflation) but debt still an issue
 Lowering taxes will increase
economic growth, leading to
more gov. revenue
 Too much spending created
the mess, so spending cuts
should be focus