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Does the U.S really have a debt crisis? wgbh/pages/frontlin e/tentrillion/view/

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Presentation on theme: "Does the U.S really have a debt crisis? wgbh/pages/frontlin e/tentrillion/view/"— Presentation transcript:

1 Does the U.S really have a debt crisis? wgbh/pages/frontlin e/tentrillion/view/

2 Introduction  Federal budget one of most contentious political issues  Passed by congress  Budget battle was for years a “silent war” BUT skyrocketing national debt makes it more public and partisan Current national debt: 16 Trillion Dollars

3 What is National Debt? Total sum of money borrowed by the gov’t from U.S. population, lending institutions, foreign banks & government's own funding- like social security  11.5 trillion owned by public or treasury securities held by individuals, corporations, federal reserve & local, state, fed government.  Rest is from bonds held by social security, medicare & other government funds.

4 What is a Budget Deficit? Occur when the government spends more than it takes in.  Last few years have seen annual deficits topping $1 trillion.  Due to tax cuts, military spending in Iraq & Afghanistan and Obama administration's economic stimulus

5 What is a Budget Surplus? Occur when the government takes in more than it spends.  There have only been 5 years of surplus  1969  1998  1999  2000  2001 

6 Timeline of Debt  U.S has a long history of debt  Spiked due to vast military spending of WWII  Remained relatively constant throughout the 70s  Reagan administrate saw rising debt due to large tax cuts and increases in Cold War defense spending

7 Timeline of Debt  Debt up to near 50% of GDP by early 90s  Clinton administration saw reduction in debt and biggest government surplus in history.  Why?  Reductions in defense spending  Tax increases  Congress led budget control measures  A booming economy

8 Timeline of Debt  Bush administration saw large increases in debt throughout the 2000s due to:  Sweeping tax cuts  Entitlement program extensions  War in Iraq  War in Afghanistan  Global financial crisis and economic recession which followed

9 Timeline of Debt  Obama entered office in midst of recession.  Passed stimulus plan of spending increases and tax cuts to kick start economy which added $790 billion to debt  Despite drawdown of wars, debt as percentage of GDP increased from 36% in 2007 to 67% in 2011

10 Timeline of Debt  2011 elections saw Republicans take control of House of Representatives behind a platform of aggressive debt reduction without tax increases  Battles between fiscally conservative Repubs & President, who believes next decade will see debt at sustainable levels, have led to several high profile economic showdowns in recent years  Yearly deficit for 2013 projects to be smallest since 2008

11 Best Path Forward: Competing Perspectives  Republicans in congress generally favor major spending cuts without increasing revenues.  Democrats typically believe new revenues (usually through taxes) are necessary along with any spending cuts.  Areas of focus for spending cuts also differ. For example- to cut military spending or Medicare?

12 Best Path Forward: Economist Perspectives  Some economists argue other issues are more pressing than the debt  Since most of debt is money Americans owe to selves- more spending would be best way to improve weak economy  Others favor more supply side approach  Concerned that if the debt continues growing it could hurt the governments ability to pay for essential needs.  Money owed to foreign countries could also harm our relations with these nations.

13 The U.S National Debt is Not a Crisis PRO  Nat’ l debt-mostly money Americans owe to selves  Americans need more gov’t spending to aid sluggish employment  Debt’s nothing new- since founding  Slashing gov’t spending at time when gov’t is recovering from economic crisis can throw U.S. back into recession CON  Nat’l debt limits gov’t ability to pay for what it wants/needs  Without action, interest payments could be $900 billion by 2022  Foreign gov’t/investors hold half of debt- risking leverage  European crisis demonstrates speed that fiscal crises can develop

14 Reducing Debt Must Involve Tax Increases PRO  Spending cuts in a weak economy could lead to higher unemployment & back to a recession  Tax increase needed as Americas do not want cuts to entitlement programs like Medicare or social security  Aging baby boomers place demand for increase revenue to fund entitlement programs  Only fair to ask all- especially wealthy- to contribute their fair share CON  Government has spending problem, not revenue problem  Tax revenue expected to be at record high (not adjusted for inflation) but debt still an issue  Lowering taxes will increase economic growth, leading to more gov. revenue  Too much spending created the mess, so spending cuts should be focus

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