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Chapter
Sixteen:
Deficits and Debt
Deficits and National Debt
Figure 16.1: U.S. National Debt as a Percentage of
GDP
Percentage of GDP
140.0
120.0
Total Debt/GDP
100.0
80.0
60.0
Debt held by Public/GDP
40.0
20.0
0.0
1940
Source: Whitehouse.gov
1950
1960
1970
1980
1990
2000
2010
Figure 16.2: Domestic and Foreign Holdings of U.S. Debt
80
70
Total Debt
60
50
40
30
Foreign-held Debt
20
Domestically-held Debt
10
0
Source: White House Office of Management and Budget, Economic and Budget Analyses, Table 6–7
The Debt and its Links to
Finance
Table 16.1: Debt Taxonomy
Government
Debt Type
Gross federal debt
Public debt
Debt held by public
Internal debt
External debt
State and local debt
Private
Households and notfor profits
Financial sector
Non-financial
business
Description
Generally synonymous with the national debt; refers to the total
amount of money owed by the federal government to all
claimants.
Gross federal debt minus debt held in government accounts
Public debt minus the debt held by the Federal Reserve
The share of the gross federal debt owned by domestic
individuals or groups
The share of the gross federal debt owned by foreign individuals
or groups
The total value of all state and local bonds outstanding
Includes mortgage debt, credit card debt, and bank loans
Total of all corporate debt for financial industry
All corporate debt and bank borrowing for non-financial business
Figure 16.3: Total U.S. Indebtedness as a
Percentage of GDP
Debt as Percentage of GDP
400%
350%
300%
250%
200%
150%
100%
50%
0%
1965
1970
1975
Non-financial Business
State & Local Govts
1980
1985
1990
Financial Sector
Federal Govt
1995
2000
2005
2010
Households & Non-profits
Figure 16.4: Interest Payments as a Percentage of
Total Federal Outlays
20%
Interest Payments as a Percentage of
Federal Outlays
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012
Source: BEA.gov
Figure 16.5: The Interest Rate on 10-Year Treasury
Bonds
16%
14%
Interest Rate
12%
10%
8%
6%
4%
2%
0%
1962
1967
Source: St. Louis Federal Reserve Bank
1972
1977
1982
1987
1992
1997
2002
2007
2012
Political Economy of the Debt
Figure 16.6: Ownership of Gross Federal Debt
Federal
Reserve
9.6%
Foreigners
33.5%
Social Security
16.4%
Other Government
Accounts
14.8%
Private Sector
21.3%
State and Local
Govts
4.3%
Source: Treasury Department, 2013
Figure 16.7: Foreign Holders of Gross Federal
Debt
Others
33.9%
China
22.8%
Japan
19.3%
Belgium
3.1%
Switzerland
3.2%
Taiwan
Caribbean Banking
Brazil
3.3%
Oil Exporters
Centers
4.5%
4.6%
5.2%
Source: Treasury Department, 2013
Figure 16.8: Debt-GDP Ratios, an International
Comparison
250
Japan
Debt-GDP Ratio (Percentage)
200
Greece
150
Italy
U.S.A
100
Germany
France
Canada
50
United
Kingdom
0
2006
Source: OECD, www.oecd.org
2007
2008
2009
2010
2011
2012
Table 16.2: EU Deficit and Debt Levels in 2012
(percentage of GDP)
Deficit as percentage of
GDP
Debt as percentage of
GDP
Portugal
-4.6
124.3
Italy
-1.7
122.7
Ireland
-8.4
121.6
Greece
-7.4
168.0
Spain
-5.4
87.9
Source: www.oecd.org
Deficit Projections and Potential
Policy Responses
Figure 16.9: Projected Annual Deficit as a
Percentage of GDP
Annual Deficit as a Percent of GDP
8
7
6
5
4
3
2
1
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Congressional Budget Office, 2013
Table 16.3: Selected Budgetary Reforms,
Congressional Budget Office
Budgetary Reform
Potential Budget Savings
in 2020 (billions)
Reductions in Mandatory Spending
Repeal the expansion of health care coverage under the Affordable
Care Act
Repeal the individual health insurance mandate
Raise the age of Medicare eligibility to 67
Raise the full retirement age for Social Security
Link Social Security payments to average prices rather than average
earnings
Limit malpractice torts
Increase the interest rates charged on student loans
Reductions in Discretionary Spending
Allow the sequestration budget cuts to reduce military spending
$150
Allow the sequestration budget cuts to reduce non-military spending
Limit highway funding to expected highway revenues
Reduce funding for the National Institutes of Health
Reduce Department of Energy funding for energy research
Eliminate certain education programs
Revenue Increases
Allow all 2001, 2003, and 2009 tax cuts to expire as scheduled
Limit tax deductions to 15 percent of income
Institute a tax on greenhouse gas emissions
Eliminate the tax deduction for state and local income
Increase the earnings subject to Social Security taxes
$70
Gradually eliminate the mortgage interest deduction
Increase the motor fuels excise tax by 25 cents per gallon
Source: CBO, 2012
$40
$30
$30
$30
$10
$10
$75
$11
$4
$4
$2
$550
$150
$140
$110
$60
$50
$30