Experts dispute perils of nation’s debt

Budget planners differ on the details, but they agree on one thing: There will be massive increases in the national debt during each of the next five years. Not everyone is alarmed by the rising national debt or the recent budget deficits, which total more than $2 trillion over the 2002-08 period. “Budget deficits are such a small part of the economic equation, they are to be ignored,” said Ryan Ellis, tax policy director at Americans for Tax Reform.

“When compared with the balance sheet of the nation,” deficits are “minuscule,” said James Galbraith, an economist at the University of Texas who essentially ignores the $4.2 trillion in intragovernmental debt. “Debts from one government agency to another are, of course, merely accounting,” he said.

An opposing school of thought predicts dire consequences.

“National debt is growing at an alarming rate at the same time that people will begin to rely on the government for Social Security and Medicare more and more,” said Addison Wiggin, co-author of the book “Empire of Debt” and executive producer of the documentary “I.O.U.S.A.,” which is playing at theaters throughout the country.

Mr. Wiggin considers the national debt to be “the greatest threat to national security apart from a terrorist acquiring a nuclear bomb.” Fiscal challenges facing the United States, he said, are “much greater than the costs of the current wars” in Iraq and Afghanistan.

David Walker, the former U.S. comptroller general whose “Fiscal Wake-Up Tour” is documented in “I.O.U.S.A.,” agrees.

He argues that America’s fiscal irresponsibility is a greater danger to the republic than “someone in a cave in Afghanistan or Pakistan.” In recent testimony before the House Budget Committee, Mr. Walker warned: “Based on historical tax levels and absent meaningful entitlement, spending and tax reforms, the United States will face debt burdens in the future that would make Third World nations look thrifty.”

Three very different budget plans this year - the White House budget, the Democratic-crafted congressional budget resolution and an alternative budget offered by House Republicans - have two things in common. First, by using highly questionable assumptions, all three five-year blueprints are able to project minuscule budget surpluses in 2012 and 2013. Second, they all forecast massive increases in the national debt during each of the next five years, including the surplus years.

All three budgets provide the customary five-year breakdown (fiscal years 2009 through 2013) for outlays, revenues, deficits and debt. Each plan assumes that the national debt will approximate $9.6 trillion when fiscal 2008 ends on Sept. 30. That debt level is divided between $5.4 trillion in publicly held debt (which essentially represents the net balance of all previous surpluses and deficits) and $4.2 trillion in government-account debt (mostly trust funds).

Each five-year blueprint would raise the national debt by more than $2.25 trillion, which is significantly higher than the change in publicly held debt resulting from annual budget deficits and surpluses.

What accounts for such huge differences between annual budget deficits and surpluses, on the one hand, and the annual changes in the national debt on the other? Essentially, the change in the annual national debt level includes increases in debt held by government accounts.

Trust funds are the largest of these accounts by far. The largest trust funds involve Social Security, Medicare and retirement and health care plans for both the military and the federal civilian work force.

Although the White House’s budget plan, issued in February, projected a $48 billion surplus in 2012 and a $29 billion surplus the next year, the national debt still would rise by more than $400 billion each year, an analysis by The Washington Times has found. The White House’s Mid-Session Review, which was released in July, forecasts a record nominal budget deficit of $482 billion for fiscal 2009. During the same year, however, the national debt is predicted to soar by a record $817 billion.

The congressional Democrats’ five-year plan also projects budget surpluses in 2012 ($22 billion) and 2013 ($10 billion), but the national debt still would rise by nearly $350 billion in each year. In 2013, when the House Republican budget forecasts a $2 billion surplus, the national debt would soar by nearly half a trillion dollars.

Mr. Galbraith, the University of Texas economist, considers publicly held debt the “economically interesting” figure. The annual changes in publicly held debt essentially represent the demands of the federal government on the world credit markets. If the United States runs a $482 billion budget deficit in 2009, even as its national debt is scheduled to rise by more than $800 billion in the same year, the government will have to borrow “only” $482 billion in the world credit markets. The U.S. government would borrow the difference between $482 billion and $817 billion internally, mostly from trust funds generating surpluses.

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