Cutting The National Debt Essay Research Paper

Cutting The National Debt Essay, Research Paper

Cutting the National Debt

“It’s time to clean up this mess.” Famous last words heard from the

mouths of many different politicians when talking about the national debt and

the budget deficit. Our debt is currently $4.41 trillion and we have a budget

deficit of around $300 billion and growing. Our government now estimates that

by the year 2002 the debt will be $6.507 Trillion. While our politicians talk of

balancing the budget , not one of them has proposed a feasible plan to start

paying down the debt.

In the early days of our government debt was considered to be a last

resort. In 1790, when Alexander Hamilton, as secretary of the Treasury, made

his first report on the national debt of the United States, he estimated it at

close to $70 million. After alternately rising and falling, the debt stood at

only $4 million, or 21 cents per capita, in 1840. That was the lowest point ever

reached by the public debt of the U.S. After 1840 it rose to a peak, in the last

year of the Civil War, of almost $2.68 billion and a per capita figure of $75.01.

The only justification for debt of any significant amount was a war. By 1900

this had been reduced to under $1 Billion. By 1919, the end of World War I, the

debt had climbed to $25.5 Billion. In each of the following years the debt was

reduced, and by 1930 stood at $18.1 Billion. With the collapse of Wall Street in

1929, the country

(debt history: 1850 to 1950) fell into the Great Depression, which lasted

until 1940. At that time the debt had climbed to $51 Billion. By the end of

World War II the debt was $269 Billion.

Again the government worked to reduce the debt, and by 1949 it was

$252.7 Billion. At that point the Korean War started, sending the debt to $274

Billion by 1955. Since then, there has been no serious effort to pay down the

debt. The main point to be made was that on three separate occasions a major

debt reduction effort had been made, but in the past 55 years in spite of much

arm-waving there have been no similar results.

The U.S. debt is divided into two major kinds of loans, marketable and

nonmarketable. The former provides about 52 percent of the total and is made up

of bills, notes, and bonds that can be traded; the latter includes U.S. savings

bonds, foreign-government-owned securities, and government account securities

that are redeemable but not tradable. Maturity of this debt ranges from less

than a year to over 20 years, with the average maturity about 3 years. More than

half of the debt, however, is short term, maturing in less than a year. A

ceiling is placed on U.S. federal debt, and Congress must enact new legislation

to raise the ceiling. Between 1981 and 1990 the ceiling was raised from about

$1.08 trillion to about $4.15 trillion.

Unfortunately at the end of 1995 we reached the ceiling again, and

Congress refused to raise it. They felt that it had become too much, and there

was a government shutdown for a few days in November. Not only was this an

inconvenience to many people, it also accounted for an estimated $63 million a

day in lost productivity, and almost double that in lost tax revenue.

Due to the threat of this, Clinton has a plan to balance the budget by

2005. This plan includes a projected $1.1 trillion spending cut over the next

ten years, slow the growth of spending on Medicare and Medicaid, trim social and

farm programs, close a number of corporate tax loopholes and retain the package

of middle-class tax cuts he proposed earlier. He also specified that programs

such as Social Security, education, and training would be immune from such cuts.

He did warn though, .Make no mistake– in other areas, there will be big cuts,

and they will hurt. This was June of 1995, and at the end of Fiscal Year 1996,

the national debt growth was $80 billion higher than previous projections, with

a final debt increase of $331 billion.

Where does this money go. This happens to be the most popular question

asked, yet the one nobody has a definite answer to. Out of all of the places

the government spends money, more than 50% goes to three main areas: defense,

Social Security, and Medicare and Medicaid, all of which combined account for

between $750 and $900 billion per year. In the case of national defense, there

are a few different points to be made in justification of these outrageously

high numbers. First, the costs in the 1940s and 50s due to both World War II

and the Korean War. Next comes the costs of the War in Vietnam in the mid-1960s

and 1970s along with LBJ’s Great Society Programs. This trend of big spending

continued on through the until the end of the 1980s under Reagan’s Cold War

programs. With the Cold War over, and the United States recognized as the

world’s only superpower, the defense budget is now being cut. But despite these