The US national debt is a topic that has been widely discussed and debated in recent years, especially as it continues to grow at an alarming rate. According to the latest data from the US Treasury Department, the national debt stood at $29.1 trillion as of February 28, 2024, an increase of $4.8 trillion since the start of the fiscal year on October 1, 2023. This means that the US national debt increases by $1 trillion every 100 days, or about $10 billion per day.
What are the causes and consequences of this massive debt accumulation? How does it affect the economy, the government, and the citizens of the US? And what can be done to address this looming fiscal challenge? These are some of the questions that we will explore in this blog post, using data and analysis from various sources.
The causes of the US national debt
The US national debt is the sum of two components: the public debt and the intragovernmental debt. The public debt is the amount that the federal government owes to external entities, such as foreign governments, corporations, individuals, and institutions. The intragovernmental debt is the amount that the federal government owes to itself, such as to various trust funds and accounts that are dedicated to specific programs, such as Social Security, Medicare, and military pensions.
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The main cause of the increase in the public debt is the gap between the federal government’s revenues and expenditures, also known as the budget deficit. When the government spends more than it collects in taxes and other sources of income, it has to borrow money from the public to finance its activities. The budget deficit can be influenced by various factors, such as economic conditions, policy decisions, and unexpected events.
For example, in fiscal year 2020, which ended on September 30, 2020, the US government recorded a record-high budget deficit of $3.1 trillion, or 14.9% of GDP. This was largely due to the unprecedented fiscal stimulus measures that were enacted in response to the COVID-19 pandemic, which increased government spending by $2.6 trillion and reduced government revenues by $0.5 trillion. In contrast, in fiscal year 2019, which ended on September 30, 2019, the budget deficit was $0.98 trillion, or 4.6% of GDP.
The main cause of the increase in the intragovernmental debt is the accumulation of surpluses in some of the trust funds and accounts that are part of the federal budget. When these programs collect more in taxes and other income than they spend on benefits and services, they lend their excess funds to the Treasury Department in exchange for special securities that earn interest. These securities are counted as part of the intragovernmental debt.
For example, in fiscal year 2020, the Social Security program collected $1.06 trillion in payroll taxes and other income and spent $1.05 trillion on benefits and administration, resulting in a surplus of $0.01 trillion. This surplus was invested in Treasury securities that increased the intragovernmental debt by $0.01 trillion.
In contrast, in fiscal year 2019, the Social Security program collected $1.04 trillion in payroll taxes and other income and spent $1.04 trillion on benefits and administration, resulting in a balance of zero.