The National Debt is in the news almost daily. With an eye-popping $14 trillion, the numbers are incomprehensible by most people. The number is growing as the government will soon be faced with the decision to raise the debt ceiling. It can be difficult to understand why the debt is becoming the cornerstone of many upcoming battles in the Federal government.
The analogy to understand the National Debt is simple. The National Debt can be compared to a credit card. In fact, that is exactly what it is, the United States’ credit card bill. Raising the debt ceiling means that Congress is voting to raise the limit on the credit card.
Now, if you were ever faced with raising your credit card limit, you know that the credit card company will raise your interest rates. When your interest rates on your credit card bill goes up, you know that it takes more of your income to pay off the minimum. The same exact thing is true with the National Debt. After some point, the countries that loan the US money will increase their interest rates. This means that more Federal funds will go to paying off interest rates instead of staying in the US economy.
Anyone who gets caught up in the credit card spiral knows how difficult it is to step out of it. It is the same premise for the Federal Government. There are really only two options to get this type of debt under control. Either raise revenue or stop spending. Both of these options have proponents and opponents.
Raising revenue for the Federal Government simply means raising taxes. Raising taxes is a more complex issue that it first appears. While some propose only raising the taxes on the “rich” or on businesses, the complex tax system guarantees that these tax raises will have unforeseen consequences. The fact is that raising income will only help pay off part of the credit card bill and that is if that money is actually used for the National Debt. The other problem comes from government officials thinking because they now have more dollars coming in, they can spend more.
It is akin to getting a second part-time job, the extra income is nice but sometimes you get hit with more taxes because you are now in a higher tax bracket. Sometimes, you don’t spend that extra paying off your credit card bills. Instead it gets spent buying a brand new television or a new gaming system. Which means that even with extra income, you are still basically in the same situation as you were in before you picked up that part-time job.
The second solution that is to cut spending. For the Federal Government, this is a difficult argument. As each Representative has their own ideas about what can and should be cut. There is also the dependent mentality that has to be defeated. The idea that everything but “my” program can be placed under the ax because “my” program is the most important.
Drastically cutting spending for many means cutting up credit cards. It also means cutting out the cable, finding a cheaper cell plan, stop eating out, using coupons, and finding ways to save on the basic bills. Cutting down on the spending is a painful reality for those with credit card debt.
At some point, the Federal Government will not be able to pay down the National Debt. It will not be able to collect enough in taxes raises alone to cover the interest payments. Cutting spending can reduce some of it but often gets caught up in political warfare.
The bottom line is that the attitude toward spending has to change before climbing out of the debt hole. This is true for the Federal Government. The National Debt is exactly like a credit card debt. The attitude the Federal Government has toward money needs to drastically change before the debt can be dealt with.