The national debt problem – already bad at about $15.4 trillion — is probably worse than reported. That’s the latest according to a new study on the debt by the accounting firm of Deloitte and Touche, a document that is designed to wake people up to the fact that the debt is whittling away the government’s ability to innovate, construct and grow.
The study found that because of overly optimistic projections, the federal debt is probably much deeper.
Those projections include letting the Bush tax cuts expire and following through on proposed cuts to Medicare. If either of those are reversed by Congress – an extremely likely scenario – then the debt crisis worsens. In addition, the government’s unfunded liabilities – again, Medicare – also increase the debt amount when they are taken into account.
Added to that is the fact that interest rate fluctuations have the ability to significantly increase the debt. Currently, interest rates are at historically low levels. That probably won’t continue, and if they rise to historical levels, interest payments on the debt go up, adding to the debt itself, the report noted.
“The economic projections being utilized are optimistic,” said former Rep. Tom Davis, R-Va., who is now director of government affairs for Deloitte. “The situation is probably worse.”
As it stands now, with current projections, every American taxpayer pays $255 a month, every month, for interest on the federal debt. Under the less rosy scenario projected by the Deloitte study, each taxpayer would bet a $424 monthly bill.
The debt takes away America’s competitiveness because the U.S. is on track to spend at least $4.2 trillion in interest payments over the next decade – the report said – money that could be invested in the American economy.
As examples of undone investments that could be made with that amount, the report said:
- STEM degrees (Science, Tech, Engineering, Math) $303 billion
- Six international Space Stations, $656 billion
- School Modernization, $352 billion
- Transportation improvements, $794 billion
- Wastewater improvements, $547 billion
“Doing nothing is unacceptable,” Davis said. “Over time, if you do nothing, we crash and burn. Everybody takes a bigger hit. Everybody is worse off; it is a Greek-type situation. Interest rates rise, it crowds everything else out an there’s nothing left for anything else.”
The Congressional Budget Office recently put out a report detailing the debt but warning that reducing it too quickly could put the economy further back into recession. Some lawmakers are using that report to argue against deficit reduction in the near term.
Davis, who served on Capitol Hill for 14 years, understands that “near term” kind of thinking, but argues that a longer view has to be taken, particularly if Congress comes back into a lame duck session after the November elections.
“People understand the seriousness of this, particularly as they go into deliberations in a lame duck. The ‘here and now’ are not unimportant issues,” he said, mentioning unemployment and other difficult economic problems. “But that needs to be balanced with how big a (debt) hole we are digging for ourselves.”
While the Congress seems set to continue its “do nothing” posture through the November elections, there are reports that some lawmakers are concerned about the “fiscal cliff” that will occur when $1.2 trillion in automatic spending cuts take effect and the Bush tax cuts expire by the end of the year. In addition, the country’s debt limit also will have to be raised, to allow borrowing to finance the debt.
Politico reported last week that a dozen senators, both Democrats and Republicans, are organizing private meeting with the goal of having a tax hike and budget-cut package ready, so that it can be introduced immediately after the November elections.