For church leaders to be more effective in seeking the “welfare of the city” (Jer. 29:7), we should know what economic concepts mean, how they should be applied, and how they affect the church. The purpose of the Economics for Church Leaders series is not to present a theology of economics, but rather to provide a basic level of understanding that will help church leaders think more clearly about how to apply their faith commitments to economics and public policy.
National Debt—The federal or national debt is the net accumulation of the federal government’s annual budget deficits, the money the federal government owes to its creditors.
What It Means
The national debt of the United States—also known as gross national debt—is what the federal government owes to creditors (public debt) and to itself (intragovernmental debt).
Public debt is the portion of the national debt the U.S. Treasury has borrowed from outside lenders via financial markets to support government activities. This is the dollar amount of debt owed to creditors such as individuals, businesses, pension and mutual funds, state and local governments, and foreign entities. Today the debt held by the public is $22.3 trillion.
Some government agencies, such as the Social Security Trust Fund, bring in more revenue from taxes each year than they need to spend within the fiscal year. When this happens, the agency “loans” the money back to the Treasury and is issued an IOU in the form of a Government Account Series security. The debt held in intragovernmental holdings is $6.1 trillion.
Why It Matters
The Bible is clear that believers are to pay what we owe. The Apostle Paul tells us, “Pay to all what is owed to them: taxes to whom taxes are owed” (Rom. 13:7). Similarly, the Psalmist warns, “The wicked borrows but does not pay back” (Ps. 37:21). And Proverbs tells us, “Do not withhold good from those to whom it is due, when it is in your power to do it. Do not say to your neighbor, ‘Go, and come again, tomorrow I will give it’—when you have it with you” (Prov. 3:27-28). If we as citizens are to pay taxes and revenue we owe, shouldn’t the authorities set up as “ministers of God” be expected to do the same?
We have no workable solution for paying off the national debt, which is over $22 trillion. Even if we spent every dollar of federal tax revenue ($3.4 trillion) on the debt, it would take more than six years to pay it off.
The problem is not only with the total debt but also the interest we have to pay to hold this debt. Interest on the national debt is what the federal government must pay on outstanding public debt each year.
Last year the interest payment was $378 billion; in ten years it will be $928 billion—nearly a trillion dollars a year. The federal government spends more on interest than programs related to education, training, employment, social services, and veterans affairs. By 2024, we are projected to spend as much on interest as on defense spending. According to the Committee for a Responsible Federal Budget, net interest spending will grow faster than any other part of the budget and within 30 years it will be the single largest government program.
Because we are not paying what we owe, we’re leaving our debt obligations to people who have not yet been born. That makes the national debt an issue of intergenerational justice. The Stanford Encyclopedia of Philosophy explains the phrase: “Present generations may be said to exercise power over future generations when, for example, we create conditions that make it costly for future generations to decide against continuing to pursue present generations’ projects.”
As John Coleman has said, “Debt can often be seen, essentially, as a loan from future generations to the current generation.” We are taking money to pay for our current projects and sending future generations the bill—all without giving them a voice or vote in the matter.
This means we are using our power to consume goods and services today and have it paid for by future generations. The result is that those generations will have fewer resources for their needs, such as taking care of the poor and needy.
It’s easy to justify incurring debt in order to pay for projects we believe are necessary, such as expanding our current social safety net. We may even justify deficit spending on projects with future benefits (such as moving from coal to nuclear energy). But in general we should ask, “Is it fair to reduce the ability of future generations to pay for their projects so that they can pay for ours?”
How we spend money today has a profound effect on the people of the future. Our crippling national debt, and our adding to it every year, could thus be considered a form of intergenerational injustice. While we can’t do much about the injustice that was thrust upon us by previous generations, we should work to break the cycle of exercising unjust power over our descendants.
What is the difference between the debt and the deficit?
The deficit is the difference between what the federal government brings in each year in revenues (taxes and fees) and what it spends during that same fiscal year. The national debt is the accumulation of all previous unpaid deficits.
Who owns the public debt?
As of 2018, about one-third (30 percent) of the public debt is held by foreign governments and investors. As of June 2021, Japan and China own the most U.S. debt, at $1.2 and $1.06 trillion. Rounding out the top five are the U.K. ($452 billion), Ireland ($322 billion), and Luxembourg ($301 billion).
Within the U.S., individuals, banks, and investors hold $2.28 trillion. Mutual funds hold $3.5 trillion. The Federal Reserve holds $10.81 trillion, while state and local governments hold another $1.09 trillion.
What forms does the national debt take?
The debt is issued by the Treasury Department in various forms of interest-bearing securities. Types of securities held by the public include Treasury bills, notes, TIPS, U.S. savings bonds, and State and Local Government Series securities.
How can the debt be reduced?
The national debt can only be reduced through five mechanisms: increased taxation, reduced spending, debt restructuring (asking debt holders to accept less money than they are owed), monetization of the debt (the government buys back the debt using newly printed money), and default (refusing to pay).
How much would it cost taxpayers to pay off the national debt?
It would require $86,147 per citizen or $228,321 per taxpayer.