The U.S. government chronically spends more money than it raises through taxes. The national debt today stands at almost $8 trillion - a big number, although not as large as the country's $10 trillion annual economic output. Where our debt comes from The Go-Go 1990s saw a huge surge in tax receipts as business boomed. That allowed Congress to not only balance the budget but also run some surpluses and pay down debt. Times were so good, the government even suspended issuing 30-year Treasury bonds. But the dotcom meltdown in 2000 and the terrorist attacks of 9/11 combined to slow the economy and put a dent back in government finances. Military spending was again increased to fight terrorism and wars in Afghanistan and Iraq. The cost of social programs, led by healthcare, also continued to grow faster than inflation. This year, one in every five tax dollars is spent on the military, one in four on Medicaid and Medicare combined, and one in ten on debt payments. Total government spending will be $2.1 trillion. That's more than $20,000 per household, a level not seen since World War II. Why this matters The recent attempted takeover of Unocal by Cnooc, the Chinese oil company, has refocused attention on the USA's growing vunerability to overseas competition. It has also reignited the debate over the long-term impact of record deficits that amounted to $412 billion in 2004. To finance its deficits, the US government issues bonds that are bought by domestic and foreign investors. If they lose faith in the credit-worthiness of the U.S. government and stop buying our debt, it would cause an economic crisis. The national debt is now growing by a trillion dollars every two to three years, a rate that many economists warn is unsustainable. Efforts to cut the deficit For the first eight months of this fiscal year, the government ran a deficit of $272 billion, down from $346 billion a year earlier. Goldman Sachs economist Ed McKelvey puts the full-year debt estimate at $350 billion, down from $412 billion last year. Vice President Dick Cheney famously said "deficits don't matter" and some supply-side economists believe the US can grow its way out of the debt. But there is a growing consensus among the left and right that the US cannot continue to live beyond its means and expect to maintain its leadership role as the world's economic engine. More Articles on Social Issues by Thor Valdmanis, formerly
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