The National Debt
Will It Reach $1 Zillion?
The Shocking and Hidden Truth

Saturday, April 13, 2007

Jonathan Hill
America First Party Chairman

Discussions of the national debt rarely touch on the root causes of the problem. They are typically long on statistics, many of which are frequently incomplete or misleading. Of course, the true statistics need to be mentioned, and they are so phenomenal that it is impossible not to be awed by them.

The Treasury Department’s cash debt statistics show a debt of over $8.6 trillion, or $29,000 for every man, woman, and child citizen, or $39,000 for every U.S. worker. The present annual interest cost of this debt is $406 billion. To understand how the debt is increasing annually, we need to add the annual interest to the budget deficit.

But here is where it gets tricky. Every year, the federal government borrows from the Social Security Trust fund, but does not include this number in the deficit calculation. The slick theory is that the government is borrowing from itself, so it doesn’t need to categorize this as debt. However, since these borrowings (now about $2 trillion) are owed in the form of benefits to retirees, they must be repaid, and therefore they are truly part of the debt.

For 2006, the government borrowed 190 billion from the Trust Fund. So the true budget cash deficit for 2006 is not just the $246 billion that the government reports, but really $246 billion + $190 billion = $436 billion!

When the interest is added to the $436 billion budget deficit, we get a debt increase of $842 billion for last year alone. So at last year’s rate of increase, the federal debt should be about $12 trillion in 5 years, an almost 50% increase from what it is now! Stated another way, that would be $40,000 per citizen, and $53,000 per worker.

As disturbing as this may seem, it only scratches the surface. What is little understood is that the Treasury Department’s numbers, as well as all the numbers stated so far, are based on cash accounting methods only, and make no reference to all the commitments the federal government has made to veterans, government workers, and to the general public via the Social Security System and Medicare. To understand the true picture, we must recognize that the government is operating what amounts to a gigantic insurance company.

Traditionally, insurance companies analyze their accounting using both the cash and accrual methods. The accrual method takes into account all the liabilities, including the benefits that are realistically expected to come due when claims are made. In other words, it makes projections of future costs based on expectations of future obligations. To correctly understand our current debt predicament, we need to take all likely future costs relating to government pensions, veterans and social security benefits into account.

These costs are regularly projected by the Treasury Department in its rarely-mentioned and virtually unknown annual Financial Report of the United States, a report required by federal law since the mid-1990s. According to Congressman Jim Cooper, a member of the House Budget Committee, "very few people in government know this Financial Report even exists." He states that the 2005 report was published "before a major holiday without a press conference or even a press release .... there was no media coverage." The Government Printing Office only printed 2,100 copies.

So it isn’t really really relevant, right? Well consider a small portion of the U.S. Comptroller General’s written evaluation of the 2006 Financial Report and its implications for the debt: "... the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the Nation’s total output (GDP) in fiscal year 2006." This accrued debt is over 5 1/2 times the amount most of us have been told, and since the 2005 report was issued, it has increased by $4 trillion!

This means that, for the government to pay for all its commitments, including pension and veterans’ benefits, as well as for programs like Social Security and Medicare as they are administered today, for all citizens alive today, the government will need to find $50 trillion, and invest it immediately in order to have the revenue to serve all those commitments and entitlements when they come due. According to Cooper, this "is roughly the annual earnings of everyone and every company on earth."

So we have now allowed government to expand its role to the extent that it has incurred a debt of approximately $166,000 for every man, woman, and child who is a citizen, or $224,000 for every worker! This situation can only have extremely grave consequences. How much longer will our government’s uncontrolled spending go on before the American people fully appreciate the present situation?

Why have we fallen into the present crisis? The major reason is the failure of generations of Americans to apply the critical principle of subsidiarity in their analysis of the federal government’s role. Subsidiarity mirrors the government of nature instituted by the Creator, and implies that individuals and organizations should provide for their own needs and manage their own affairs to the extent that they are capable of doing so, without interference or unnecessary support from higher governmental authorities. This principle is also applicable to the relationship between governments, such as local versus state, and state versus national.

Fortunately, the founders had either a clear understanding of subsidiarity, or an intuitive sense of it. Subsidiarity is strongly reflected in the limits imposed by their Constitution on the national government, and by its respect for states’ and individual rights. But if the majority of citizens no longer adhere to subsidiarity, whether for lack of virtue or knowledge, then the result will be increased pressure to reinterpret aspects of the Constitution which restrict the federal role.

Historically, the debate on the proper scope of the federal government has centered on the "general welfare clause" of the Constitution. This clause, found in article I section 8, gives Congress only three permissible reasons to raise funds - to pay the nation’s debts, and "for the common defense and general welfare of the United States."

For the first 140 years after the Constitution’s ratification, "general welfare" was interpreted very restrictively, more or less in line with the thinking of the founders. This is evidenced by the fact that government spending was only about 3% of the national income prior to FDR’s New Deal. But after World War II, with the redistributionists in charge in Washington, it edged up to about 13%, with the social spending programs during the 60s and beyond continually increasing that percentage to about 26% today, about 9 times what it was prior to 1933.

Based on this, it seems reasonable to conclude that if "general welfare" were interpreted strictly, the federal government’s spending and size would be about 1/4 of what it is today, and as Thomas Jefferson inferred, this would properly and greatly limit its role in the manner intended by the founders.

Jefferson and others recognized that strict versus liberal interpretation of "general welfare" was a question of limited versus near universal power for the national government. Early on, in the early 1790s, strict interpretation was already under attack, drawing responses from both Jefferson and Madison.

The following is attributed to James Madison: "With respect to the words general welfare ... To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators."

In 1791, Jefferson indicated that "general welfare of the United States" was correctly interpreted as referring to the welfare of the federal union: "To lay taxes to provide for the general welfare of the United States .... They are not to lay taxes ad libitum for any purpose they please, but only to pay the debts or provide for the welfare of the Union."

In 1817, he explained the original intent -- that the authority to spend for the general welfare only extended to spending relating to the enumerated powers of the national government: "Our tenet ever was ... that Congress had not unlimited powers to provide for the general welfare, but were restrained to those specifically enumerated."

In 1825, he vigorously denounced the positions of the deconstructionists and called into question their motives: "Aided by a little sophistry on the words ‘general welfare,’ [the federal branch claim] a right to do not only the acts to effect that which are specifically enumerated and permitted, but whatsoever they shall think or pretend will be for the general welfare."

Perhaps it will take an economic collapse before Americans realize that the course they have chosen, that of an expansive federal government, is unsustainable, and that returning to the wisdom of the founders is the proper solution. Given the many negative economic and fiscal trends, this collapse could occur sooner than many might expect.