National Debt: Who Pays?

By Remi Alli | April 23, 2010 AAA
National Debt: Who Pays?

If you are swamped in debt, you are not alone; even politicians appear perplexed as to how to repay the rising national debt. According to The U.S. Treasury Directory, the national debt has grown from about $5.8 trillion in 2000 to almost $13 trillion. Additionally, there have been only a few years in which there has been a balanced budget or better yet, a surplus; the national debt has generally increased tremendously each year. Let's take a look at the national debt and what past administrations have done regarding how much more is generally spent than made in profit.

In Pictures: Digging Out Of Debt In 8 Steps

The National Debt, Budget Deficit and Surplus
Instead of the government taking in more money than it spends, like in a surplus, a budget deficit is the yearly loss of money through overspending. The national debt, however, is the accumulation of all the deficits as well as the accumulated interest on loans offered to help pay off the national debt.

Therefore, money borrowed, or debt, generally equals all the budgeted deficits from the past years, minus all of the surpluses. (Learn more about the government's relationship with debt in Is The U.S. Government Too Big To Fail?)

Past and Present Administrations
The general historical trend has suggested that Democrats tend to increase GDP faster than Republicans while simultaneously increasing the national debt at a slower pace. After World War II America was faced with the heavy burden of paying off a tremendous national debt while the economy had not yet recovered from the great depression. The end of the U.S. Civil War to the early 1970s saw labor as a fungible commodity in the United States, which appeared to be a key factor in the decrease in debt.

  • 1945-1949, Democratic President Roosevelt and Vice President Truman decreased the National Debt by 24.4%.

  • 1949-1953, Democratic President Harry Truman decreased the debt by 21.5%.

  • 1953-1957, Republican President Dwight Eisenhower decreased the debt by 11.0%.

  • 1957-1961, Republican President Dwight Eisenhower decreased the debt by 5.2%.

  • 1961-1965, Democratic President Kennedy and Vice President Johnson decreased the debt by 8.3%.

  • 1965-1969, Democratic President Lyndon Johnson decreased the debt by 8.3%.

  • 1969-1973, Republican President Richard Nixon decreased the debt by 3.0%.

Increasing Productivity, Decreasing Income
In the beginning of the 1970s, the increased productivity through technology, women streaming into the workforce and the availability of inexpensive and illicit labor through immigrants and/or overseas production resulted in productivity continuing to increase, but employment income did just the opposite. More labor created more capital, but only a small minority benefited. With this confusing financial state, America's national debt became hard to speculate. (Learn more in What Fuels The National Debt?)

  • 1973-1977, Republican President Nixon and Vice President Ford increased the debt by 0.2%.

  • 1977-1981, Democratic President Jimmy Carter decreased the debt by 3.3%.

  • 1981-1985, Republican President Ronald Reagan increased the debt by 10.8%.

  • 1985-1989, Republican President Ronald Reagan increased the debt by 9.3%.

  • 1989-1993, Republican President George H. W. Bush increased the debt by 13.0%.

The Social Security Factor
Former President Bill Clinton is well known for decreasing the national debt within his last years in office by using Social Security withheld from Americans' paychecks and other funds.

  • 1993-1997, Democratic President Bill Clinton decreased the debt by 0.7%.

  • 1997-2001, Democratic President Bill Clinton decreased the debt by 9.0%.

The Debt Skyrockets
It is fairly common for administrations to subsidize the national debt through earnings from the Social Security program. Yet, due to heavy financial burdens, including subprime lending, the 9/11 attacks and the wars that arose thereafter, former President George W. Bush increased the national debt by the highest percentages ever. (Learn how the different parties really feel about taxes, read Parties For Taxes: Republicans Vs. Democrats.)

  • 2001-2005, Republican President George W. Bush increased the debt by 7.1%.

  • 2005-2009, Republican President George W. Bush increased the debt by 20.0%.

Ultimately, evidence suggests that a few past Administrations are to blame for this present debt by spending more money on security, both abroad and at home, and strategizing (and regularly restrategizing) healthcare and Social Security. And despite several hopeful political moves, not much appears to have really been done to decrease the national debt for the future generations.

Options to Reduce the Debt
In the past, the regular increase in the national debt appears to have been an unsuccessful attempt to preserve America's economy. Some believe that the current administration's best bet may be to use prudence with money.

Reducing spending and/or raising taxes may be the most feasible options for reducing the debt. The size of the debt in dollars, however, is not as important a measure of its size as the percentage of the GDP. If the economy grows faster than the debt every year, even a debt that is increasing becomes a decreasing problem with each additional year.

Conclusion
Lowering taxes would likely allow for economic growth, and an increase in national spending, and therefore help fuel the economy. Such an occurrence would be ideal for a growing economy and its people, but it most likely would not solve the issue of rising debt.

While the budget deficit for fiscal year 2010 is forecasted to be an astounding $1.56 trillion, the most amount of money lost ever, we await the outcome of President Obama's term and if it will be consistent to that of presidents of the past - or a much more pleasant surprise.

Don't miss what's happening this week in the financial world. Check out Water Cooler Finance: Buffett's Bank Fraud And Financial Eruptions.

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