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How Does the National
Debt Affect Me?

See also:
The Truth about the National Debt

          These past two years, the daily headlines and the TV news have been filled with reports of the Herculean struggles between the Congress and President George W. Bush over the Federal budgets for FY-2005 through FY-2007. This to-the-mat confrontation has even threatened the unthinkable curtailment of "non-essential" Federal services.

          Only the financial sleight-of-hand of US Treasury Secretary John W. Snow in disinvesting from Federal civil service retirement funds and withholding receipts and interest payable on Treasury securities held by these trust funds has forestalled the international debacle of defaulting on maturing Federal debts. This bitter contest over the Federal budget is triggered by deepening concern over unprecedented deficits propelling the out-of-control growth of our astronomical national debt.

          While the enormity of the national debt has been a popular whipping boy for as long as any of us can remember, can the owner/manager of the emerging business do much about this problem? How does the national debt really affect the owner/ manager of the emerging business? Isn't it much like worrying about the hole in the ozone layer — obviously immensely important, but a very remote phenomena from my day-to-day concerns?

          To understand how the national debt does affect the owner/manager of the emerging business, let's look at the numbers.

          The national debt has now passed $7.50 trillion. Thus,the ceiling imposed on the national debt by the Congress has just had to be raised to $8.18 trillion. Because of the Treasury's financial legerdemain, the real number is slightly above this ceiling. Per capita, this is more than $25,300 for every man, woman and child in the United States. Federal taxes in excess of $1,140 per year must be collected for every man, woman and child in the United States simply to pay the interest due on the national debt. Our annual appropriations for virtually all other Federal activities pale in contrast with the line item for Federal debt service.

          Since October 1, 2003, the outstanding public debt has been increasing an average of $1.60 billion every day! This increase is almost $18,500 per second. Since 1992, the national debt has doubled! These numbers are mind boggling.

          So, how does this affect the owner/manager of the emerging business? In many ways!

          First, approximately 17 cents out of every dollar of total tax revenue collected is immediately used merely to pay the burgeoning interest on the Federal debt. This is now surpassing the costs for our entire defense establishment, and it is exceeded only by the revenues needed to fund the total Medicare and Medicaid programs. (Ostensibly, Social Security is funded independently.) We are held hostage by this horrendous debt; 17 cents is the ransom to be paid out of every dollar we must cough up in taxes.

          Thus, absolutely no governmental services or benefits are delivered in return for 17 percent of our total Federal tax bill. These are substantial funds that could most prudently be re-invested in the growth of our own business, but must be shoveled out instead simply to service the interest on the Federal debt. These substantial funds are diverted by Government fiat from potentially constructive economic investments in one's own enterprise into barren interest payments to the world of strangers who hold these obligations of the Treasury of the United States.

          And secondly, the spending power of our present and potential customers would be increased dramatically if this sterile 17 percent of our total tax bill that is immediately swallowed by interest payments could only be freed for the purchase of goods and services. [Approximately half of all individual income taxes are required to pay the interest on the Federal debt.] While some of the recipients of these interest payments may recycle these funds into the purchase of domestic goods and services from emerging businesses, much of the Federal debt is held by foreigners. A substantial portion of the income of the average family of four is being devoured to pay the interest on this "family debt" equivalent to over $100,000. Thus, the Federal debt is a heavy drag on the economy, impeding job creation and entrepreneurial expansion as well as consumer spending on goods and services.

          How does the national debt affect the owner/manager of the emerging business? It drains substantial funds out of the business that could otherwise be invested in job creation and entrepreneurial expansion. And it drains substantial funds out of consumers' pockets that could otherwise be available for the acquisition of goods and services. While it may not be observable, the national debt casts an oppressive pall upon the whole economy. And this burden inevitably impedes the growth and prosperity of the emerging business.

Your comments and suggestions for these pages are most welcomed!

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Thomas A. Faulhaber, Editor

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