Explainer: What you should know about the national debt
Religion & Liberty Online

Explainer: What you should know about the national debt

What just happened?

Last month the U.S. Treasury Department reported that for the first time, the national debt has exceeded $22 trillion.

What is the national debt?

The national debt of the U.S. (also known as gross national debt) is the total amount of debt a federal government owes to creditors (public debt) and to itself (intragovernmental debt).

What is public debt?

Public debt is the portion of the national debt that the U.S. Treasury has borrowed from outside lenders via financial markets to support government activities. This is the dollar amount of debt owed to creditors such as individuals, businesses, pension and mutual funds, state and local governments, and foreign entities. Currently, the debt held by the public is $16.2 trillion.

What is intragovernmental debt?

Some government agencies, such as the Social Security Trust Fund, bring in more revenue from taxes each year than they need to spend within the fiscal year. When this happens, the agency “loans” the money back to the Treasury and is issued an IOU in the form of a Government Account Series (GAS) security. Currently, the debt held in intragovernmental holdings is $5.8 trillion.

Who owns the public debt?

As of 2018, almost one-third (30 percent) of the public debt is held by foreign governments and investors. Within the U.S., individuals, banks, and investors hold another 15 percent. Mutual funds hold 9 percent. The Federal Reserve holds 12 percent, while state and local governments hold another 5 percent. The rest is held by pension funds, insurance companies, and Savings Bonds.

Which foreign countries own the most U.S. debt?

As of December 2018, China and Japan own the most U.S. debt, with $1.1 and $1.04 trillion respectively. Rounding out the top five are Brazil ($303 billion), Ireland ($280 billion), and the UK ($272.9 billion).

What forms does the national debt take?

The debt is issued by the Treasury Department in various forms of interest-bearing securities. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities.

What is interest on the national debt?

Interest on the national debt is how much the federal government must pay on outstanding public debt each year.

Interest costs are projected to climb from $383 billion in 2019 to $928 billion by 2029. Over the next decade, interest will total nearly $7 trillion. As the Peter G. Peterson Foundation notes, “We will soon be spending more on net interest costs than we do in other essential areas such as Medicaid and Defense.”

Who is in charge of calculating the national debt?

The Bureau of the Fiscal Service is responsible for accounting for and reporting the debt.

What is the difference between the debt and the deficit?

The deficit is the difference between what the Federal government brings in each year in revenues (i.e., taxes and fees) and what it spends during that same fiscal year. The national debt is the accumulation of all previous unpaid deficits.

What is the debt-to-GDP ratio?

The debt-to-GDP ratio is the ratio between the national debt and the gross domestic product (GDP). The ratio is often used by investors to measure a country ability to make future payments on its debt, which in turn, affects the country borrowing costs and government bond yields.

The U.S. debt-to-GDP ratio averaged 61.70 percent from 1940 until 2017, reaching an all time high of 118.90 percent in 1946 and a record low of 31.70 percent in 1981. The current ratio is 104.15.

How can the debt be reduced?

The national debt can only be reduced through five mechanisms: increased taxation, reduced spending, debt restructuring (e.g., asking debt holders to accept less money than they are owed), monetization of the debt (e.g., the government buys back the debt using money printed out of thin air), and default (i.e., refusing to pay the debt).

How much would it cost taxpayers to pay off the national debt?

Currently, it would require $67,331 per citizen or $180,598 per taxpayer.

Why should Christians care about the national debt?

The Bible is clear that believers are to pay what we owe. The Apostle Paul tells us, “Pay to all what is owed to them: taxes to whom taxes are owed . . .” (Romans 13:7). Similarly, the Psalmist warns that, “The wicked borrows but does not pay back . . .” (Psalm 37:21). And Proverbs tells us, “Do not withhold good from those to whom it is due, when it is in your power to do it. Do not say to your neighbor, ‘Go, and come again, tomorrow I will give it”—when you have it with you.’” (Proverbs 3:27-28). If we as citizens are to pay taxes to whom taxes are owed, and revenue to whom revenue is owed, shouldn’t the authorities set up as “ministers of God” be expected to do the same?

The problem is that we are not only not paying what we owe, we’re leaving our debt obligations to people who have not yet been born. That makes the national debt an issue of a matter of intergenerational justice. The Stanford Encyclopedia of Philosophy explains the term as,  “Present generations may be said to exercise power over future generations when, for example, we create conditions that make it costly for future generations to decide against continuing to pursue present generations’ projects.”

As John Coleman has said, “Debt can often be seen, essentially, as a loan from future generations to the current generation.” We are taking money to pay for our current projects and sending future generations the bill — all without giving them a voice or vote in the matter.

Christians should recognize that it is wrong to transfer exorbitant amounts of wealth from future generations to those of us who are living today. Our crippling national debt is unjust and immoral form of intergenerational injustice.

Joe Carter

Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).