You can't go a minute these days without hearing about the size of our national debt problem and the impact it'll have on the economy. The Pew Trust has an interesting paper discussing a point often overlooked in this discussion: where all that debt came from.
It starts by noting how far we've come: "In January 2001, the Congressional Budget Office (CBO) projected under a current law baseline that the federal government would erase its debt in 2006 ... The reality, of course, has turned out to be far different: the U.S. will likely owe $10.4 trillion this year, its largest debt relative to the economy since 1950."
By comparing CBO's 2001 debt projections with 2011's reality, Pew shows exactly where the budget went off course over the last decade:
A few things should stick out:
- The largest debt driver by far has been lost tax revenue because of a slow-growing economy.
- Add in tax cuts, and fully 49% of the debt increase came from less-than-expected revenue.
- Nondefense discretionary spending, the area that gets virtually all the attention from politicians, is responsible for a very small portion of the increase -- just 10%.
- TARP, the 2008 bank bailout, contributes a number that rounds to zero. All the big banks, including, Bank of America (NYSE: BAC ) , Citigroup (NYSE: C ) , and Wells Fargo (NYSE: WFC ) have repaid their bailouts in full. Even General Motors (NYSE: GM ) is close.
Food for thought as whether to raise the debt ceiling becomes a critical story over the next few months.
What do you think?