Despite Sequestration, Debt Soars!

Even with tax increases and sequestration cuts, the national debt has skyrocketed by $365 billion so far this calendar year. Debt is growing by $5.5 billion every day.
(according to U.S. Treasury Department data)

Interest payments on the debt have totaled $58.2 billion in the first three months of the year. Annualized, interest costs alone will be 2.7 times MORE than the vilified sequestration spending cuts. Nobody, so far, has vilified the $58.2 billion in interest costs.

All this has happened despite a number of major tax increases and spending reductions implemented at the beginning of the year. Together, they should have slowed or reduced federal spending.

Given the staggering numbers, how much have the tax increases and spending cuts helped?

2013 Tax Increases and Spending Reductions

Major tax increases on January 1st:

  • Payroll taxes raised 2.1%
  • Top marginal tax rate (on the rich) raised to 39.6%
  • New Obamacare taxes took effect
  • Investment tax increase
  • Death tax increase

Reductions in spending:

  • Sequestration took effect March 1st
  • National debt growth was capped all of January

Major tax cuts and new spending initiatives

  • none

This should be the perfect prescription for federal spending reductions.

Sooo… what positive effect have all these changes had?

2013 Compared to 2012

Debt growth in 2013 is DOWN from debt growth in 2012 over the same period of time.

This year’s decrease in debt growth was because payroll taxes were increased 2.1%. This isn’t reasoned from in-depth scientific analysis, but is solid.

The payroll tax is a tax applied to each and every worker’s paycheck issued in the United States. It reduces your take-home pay. Increasing that tax 2.1% now raises about $120 billion/year.

In 2012, the national debt grew nearly $395 billion by April 4th. That was $30 billion more than this year. That is a debt growth rate of $6 billion/day!

Interestingly enough, a $30 billion decrease amounts almost exactly to the amount of increase in quarterly tax collections realized this year by raising payroll taxes 2.1%.

Conclusions

For all the talk of doom and gloom, it is obvious from the chart above that the much ballyhooed sequestration cuts haven’t slowed down debt growth. In fact, you can’t even notice it.

Come away with two important lessons:

  1. Sequestration isn’t reducing federal spending one red cent
  2. Tax increases are barely slowing down federal spending

Cutting off White House tours to little kids is just plain old political grandstanding. Congress and the President have no intention of cutting anything.

Therein lies the rub. As this year’s Treasury data clearly shows, tax increases and fairytale spending cuts will not stem the tide of federal debt growth. Job creation and meaningful spending cuts MUST be added to the mix.

The U.S. national debt and debt growth seem staggering. But the government is not in imminent danger of bankruptcy. The U.S. is a very rich country. It can take on a lot more debt before it dies. It also has monetary tools that can delay things even further.

It will take years to bring the nation down, but it will happen if we continue further along a rose garden path into long-term debt purgatory.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Apr 8, 2013, in Budget, Business, Debt crisis, economics, Economy, Government, news, Opinion, Politics, Taxes. Bookmark the permalink. 3 Comments.

  1. Surprise, surprise! More taxes equals more money to spend.

  1. Pingback: Despite Sequestration, Debt Soars! | catherinephung

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