The U.S. debt burden may be a small issue to the politicians of today, but it will become a grave problem to future generations of taxpayers (us, the millennials).
By now, most of us have heard about the problem that is the growing size of the U.S. national debt. The debate about whether or not to raise the debt ceiling—that is, how much the government is legally allowed to borrow to finance its expenditures—will resurface in the national spotlight early next year as Congress revisits the issue.
Seemingly any politician, pundit or economist will agree that the current level of national debt is unacceptable, and that its growth must be slowed down before it wreaks havoc on the economy. But so far, these claims have proven toothless as no concrete measures have been taken to lessen the debt burden by lowering expenses or raising taxes.
As a result of our government’s inaction, the U.S. debt burden currently stands at 104% of the GDP, or over $19 trillion dollars. And it’s growing fast too, as the graph below illustrates.
But why should we be alarmed by our large level of public debt?
First, it is helpful to gain some historical perspective. The U.S. total debt-to-GDP ratio has not been over the 100% mark since the country mobilized to fight in World War II. The economic boom that followed, combined with appropriate taxation, allowed for the government to collect revenues to pay off the debt burdens from victoriously fighting the wars spanning from Europe to the Pacific.
Seven decades ago, the federal government led the way in defeating the Nazi and Japanese empires, all the while donating generously to rebuild the post-war Europe, cementing U.S. global leadership that lasts to this day.
As we are fast approaching to break the record set 70 years ago, it is only natural to ask: to what do we owe the outsized debt burden of today?
As the graph above illustrates, in 2015 more than 60% of the federal budget was dedicated to government-sponsored welfare programs, spanning from healthcare to keeping people above the poverty line. It would be difficult to argue that these expenditures are without noble goals; however, despite the admirable intentions of these programs, it is important to understand how they get paid for.
As the late economist Milton Friedman said: “There is no such thing as a free lunch.”
The majority of the welfare programs, which benefit those above the age of 50, are owed to every administration since the 1960s outbidding the former with promises of increasing government-provided welfare programs. It has been a politically advantageous tactic—used by Democrats and Republicans alike—to gain votes from the beneficiaries of these programs. As Chancellor of Germany Otto von Bismarck remarked in the 1880s: “A man who has a pension for his old age is much easier to deal with than a man without that prospect.”
There is no issue with spending programs as long as the people benefitting from them are also paying their dues, which would be in the form of taxation. However, much of the welfare is not financed through taxpayer revenue, but rather through taking on loans from individuals and foreign governments.
In the plainest terms, this means that the elected officials are choosing not to make the current taxpayers pay for the programs, but rather pass on the payments to the following generations (plus interest, which stands at over $200 billion as of 2015).
This is why the debt burden should matter to young people. Our former and current elected government officials have promised generous welfare programs to their voters—with the promise that a future generation will pay for it. Today, the debt per capita is approximately $59,000—and growing fast. No other generation of taxpayers has been expected to pay down this much debt since the 1950s.
The task wouldn’t be as daunting if the nation enjoyed the same economic prosperity it did in the post-World War II period.
When the economy is growing fast and GDP per capita is rising, enacting higher taxes to pay down the debt is not as difficult to swallow. However, the economy is not expected to grow at the remarkable speed it did generations ago when there were virtually no foreign competitors to challenge our domestic industries, allowing for the U.S. reign as the world’s sole economic superpower. The gloomy reality of the present economic landscape, combined with the fact our debt is expected only to rise as the baby-boomer generation requires more healthcare and social security expenditures, means that young people of today will be paying much of their future income in taxes.
Taxes are necessary, but are they acceptable when paid only to cover the expenses of previous generations? Considering that the individuals and foreign governments who own U.S. debt will be expecting their money back eventually, our generation will lack the luxury of raising the debt ceiling and simply passing the costs to our children and grandchildren. We will have to pay the trillions of dollars—earned through our future labor—to pay for the expenditures our politicians promised generations ago to past generations of voters.
Come March 2017, when Congress debates whether to raise the debt ceiling, remember that since it will not be their problem, they will probably vote to raise it. Because it will be ours.