- The Washington Times - Wednesday, November 24, 2004

We heard a lot frightening talk about our national debt in this year’s campaign and in this month’s House and Senate debate over raising the debt limit by hundreds of billions of dollars.

The numbers may sound scary, but many wild claims are being made about our total federal debt that exaggerate its size and misstate its impact on the U.S. economy. In fact, the real debt we owe lenders is a great deal smaller than it’s touted to be. And the numbers have little to do with our economy’s year-to-year performance.

We have had robust, record-breaking economic growth during periods of rising federal debt and equally strong economic performances when the government’s debt was falling.

What is called the statutory debt limit, which Congress must raise every now and then (and did this month) to permit additional borrowing, is a cap on the total debt the federal government can run up at any given time. We have hit that limit now, nearly $7.4 trillion, which is the number we usually hear to describe the total the feds owe.

Lawmakers beat their breasts in feigned outrage over the national debt, even though most if not all of them have contributed to such debt by voting for higher spending. Members of Congress condemn the rising debt totals as “fiscal irresponsibility” that threatens the economic health of our country. But the truth is, as a recent Joint Economic Committee report makes clear, “the debt limit should not be used as a barometer of economic or fiscal health.”

We have been regularly raising the debt limit since 1940. JEC economists say that in the last 64 years “Congress has raised or extended the debt limit nearly 80 times.”

The Constitution gives Congress sole authority to borrow money, but in 1917 — as our entry into World War I loomed — borrowing for the war needed to be done quickly, as in succeeding wars or national emergencies. So it gave that authority to the U.S. Treasury under a debt limit lawmakers agreed to raise as needed.

The problem is the $7.4 trillion national debt number is not a true description of what the government actually owes creditors. The real figure is much smaller because, as a JEC report points out, “Not all debt is equal.”

As a fledgling Washington reporter in the 1970s, I would call up the U.S. Treasury every so often to get the total debt owed. The officials in charge of keeping that number would always ask me, “Do you want the gross nightmare number or do you want the real number?”

There are two kinds of debts. There is publicly held debt, which is sold to the public in the form of Treasury bills, notes and bonds, which totals $4.3 trillion, or about 60 percent of our total debt. This is the true debt held by banks, retirees who want a safe, secure investment for their money, along with other financial institutions and even foreign governments.

Then there is something called government-held debt, which totals $3.1 trillion, or about 40 percent of the gross national debt. This is money loaned from one government program to another. It is essentially debt the government “owes itself.”

For example, Social Security’s surplus revenues are routinely spent by the government to pay other bills in exchange for a Treasury IOU that the retirement fund can redeem when its does not have enough funds to pay all of its benefits (which will happen in about 15 years or so). “This type of debt is largely an accounting mechanism, and counting it as debt is analogous to counting an IOU to oneself as personal debt,” the JEC says.

The Congressional Budget Office explains these transfers of debt are only “reallocating costs from one part of the budget to another; they do not change the deficit or the government’s borrowing needs.” Thus, they “have no effect on the economy or the government’s future ability to sustain spending at the levels indicated by current policies.”

In other words, our real $4 trillion debt is a lot less of a burden than the gross number suggests. It’s even less when measured as a percentage of our gross domestic product (GDP) which is the sum of our national income.

CBO tell us publicly held debt is about 37 percent of GDP — lower than the debt-to-income ratios “the U.S. sustained for most of the 1980s and 1990s.” Notably, it’s far lower than the 43 percent of GDP in 1998.

But debt or no debt, we have had spectacular economic growth over many decades — growth that has allowed us on occasion to reduce this debt by record sums. For example, we were able to slash the public debt an astounding $448 billion, nearly half a trillion dollars, between 1998 and 2001.

The lesson, then, is to not get overexcited about a $4 trillion public debt in a government spending $2.4 trillion a year in an $11 trillion a year economy. Instead, we need to focus on accelerating economic expansion through lower tax rates, while gently applying the brakes on spending, which last week’s budget bill did quite nicely, thank you.

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.

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