Debt Ceiling, Deficit and National Debt; The Difference and Why it Matters

by Proactive Technologies, Inc. – Staff

There is a lot of talk and confusion these days about state of the country’s finances. Often one measure is used to conflate and confuse the discussion about how to improve the others. The danger is those most impacted by whatever corrective measure becomes law are usually the same ones who have been sliding backward for the last 4 decades.

It is important to know the difference and add your voice to the discussion.

“The debt ceiling is a limit on the total amount of government borrowing. First put in place by Congress during World War I, it was meant to give blanket authorization for the Treasury Department to borrow money up to a set amount.”

“The U.S. budget deficit is how much more the federal government spends annually than it receives in revenue during that same time period.”

“The national debt of the United States is the total national debt owed by the federal government of the United States to Treasury security holders. The national debt at any point in time is the face value of the then-outstanding Treasury securities that have been issued by the Treasury and other federal agencies. The terms “national deficit” and “national surplus” usually refer to the federal government budget balance from year to year, not the cumulative amount of debt.”

At the end of the second quarter in 2022, the national debt was about $30.6 trillion. Based on the second-quarter GDP of $24.9 trillion, the debt-to-GDP ratio was about 123%.

How did the national debt get so high? It is probably not what you have been told.

According to the Federal Reserve of St. Louis “Running a trade deficit is nothing new for the United States. Indeed, it has run a persistent trade deficit since the 1970s—but it also did throughout most of the 19th century. …the U.S. goods trade balance as a percent of GDP (gross domestic product) from 1800 to 2018. From 1800-1870, the United States ran a trade deficit for all but three years and the trade balance averaged about –2.2 percent of GDP. Then from 1870-1970, it ran persistent trade surpluses that averaged about 1.1 percent of GDP. Starting in about 1970, the United States began to run trade deficits again, which have continued to this day. These shifts in the long-term U.S. trade balance appear to correspond well with U.S. industrialization in a global setting.”

In other words, this trade imbalance corresponds to the rise in globalization, which was facilitated by the neoliberals (both parties) in government creating policy, incentives and laws for the outsourcing of manufacturing to lower-wage labor sources around the world. Since the U.S. imports more than it exports, contributions to the Treasury are lower than it needs. Therefore, the Treasury borrows money from other countries – like China, a major beneficiary of the manufacturing shift – to finance its budget including military spending.

“Two unfunded wars, three recessions, a global pandemic and three rounds of tax cuts all contributed to the tide of red ink” according to Scott Horsely of NPR and most unbiased economists. Money borrowed for these major events isn’t approved through the budget and a contributor to the deficit, but through separate legislation which contributes directly to the national debt!

Here is where it gets muddy. Ideological forces that have been at it for decades trying to convince citizens that in order to reign in spending, which effects the budget deficit, successful social programs like Social Security, Medicare, Medicaid and education need to be cut, but the military spending increases and this country has had no declared wars (therefore not budgeted by Congress) sine WWII. According to Newsweek magazine, the cost of the “War on Terror” since 9-11-2001 is $21 trillion. They, also, say increasing taxes for the wealthy(who have benefitted immensely from the tilted arrangement for the last 40 years) is a non-starter, even though the tax cuts already extended to the wealthy add to the budget deficit and therefore add to the national debt when financing to replace the revenue occurs.

Fun Facts:

• There are 735 billionaires in the US at the end of 2022, worth a total of $4 trillion.
• The top 4 US billionaires are: Elon Musk – $251 billion (Tesla / SpaceX), 2. Jeff Bezos – $151 billion (Amazon), 3. Bill Gates – $106 billion dollars (Microsoft), Larry Ellison – $101 billion (Oracle).
• According to Statista, at the end of 2022 the top 1% of the people in the U.S. own 31.1% of U.S. wealth; the top 10% own 68.2 % and the bottom 50% own 3% of the wealth.

Social Security, Medicare, Medicaid were set up to be independent of the budget, self-funded by its own contributions from payroll taxes; if it had not been that the social security trust funds was used as collateral to offset other congressional over-spending and if the U.S. hadn’t out-sourced good paying manufacturing jobs which kept the funds in a perpetual surplus, it would not be part of any reduction discussion. After the Bankruptcy Reform Act of 1994 made it easier for companies to file bankruptcy to relieve themselves of the defined-benefit pension programs it promised to its workers, the Social Security, Medicare, Medicaid programs are the last safety net for millions of retired and working Americans. From 1990 – 2010 there was a massive shedding of pension plans by corporations, which left the retirees and future retirees under the jurisdiction of the Pension Benefit Guarantee Corporation, which takes over troubled pensions (sometimes at a fraction of the original retirement amounts) using contributions made by employers – until it ran out of money and Congress has to now fund it, too, adding to the budget deficit and national debt.

This is only one example of conflation in discussions of how to reign in the national debt. And by the way, since workers cannot save for retirement due to the low interest rates bank offer on savings (prior to 2000 this was a major source of a retiree’s income) and any other form of investment (such as 401Ks) is fraught with risk from Wall Street crashes and scandals, sometimes depleting an investment portfolio by half at a time. Government would be wise to take Social Security, Medicare and Medicaid off the reduction table and instead put it back to its intended structure since the remaining employers that still have defined-benefit pensions may be looking for a way to shed their plans, as well.

Whether the last 40 years will be recorded in history books as the greatest wealth transfer in world history is up to those who write and publish the books. But the legacy of the misguided government policies, accelerated and expanded by the case brought by the conservative lobbying group Citizen United, and all of the other government actions that continue to work against workers and families are set in stone – surrounded by lobbyists who defend their gains and a media that keeps us busy with unrelated issues and crises. The Supreme Court Citizen United decision made it possible for the wealthy and their “think tanks” to contribute without limits to all political candidates, all campaigns in local, state and federal level elections (minimizing the voices of the 99% of U.S. citizens who are hardly “united” with the lobbying group and whose interests are not aligned with tiny few represented by the case). One of the biggest beneficiaries of all of the money is the media, through candidate and issue advertising.

If one is going to take a side in these arguments, it should be important not to support a cause that will make you and your family’s life unnecessarily more difficult.  Most of these executed and suggested changes that work against the average person’s interest have been institutionalize and will be difficult to turn back unless a vast majority of citizens join together and express their will. If unconcerned, accept the declining U.S. dominant position in the world and save yourself worry about the growing national debt. Afterall, if the U.S. continues to pay out more for imports that it receives from exports, the difference has to be financed. And replacing manufacturing exports with financial services classified as exports doesn’t change the underlying economy for at least 80% of America.