A Nation in Debt~ Total u.s. Debt Burden Hits $10.6 Trillion, Nearly Double GNP

By Gregory S. Leong

As the nation struggles to work its way even more rapid increase of the federalout of recession, Americans are feeling the government's debt.pinch of the $10.6 trillion total U.S. debt. The federal government has been on aFueled by record spending at all levels of spending spree, more than tripling its debtgovernment, highly leveraged financing by from $743 billion in 1980 to $2.6 trillion incorporations, and record consumer credit 1990, increasing the federal slice of the totalcard spending, the debt currently amounts debt from 19 to 24 percent. State and localto a $42,277 IOU for everyman, woman, and government debt has grown less rapidly,child in the U.S. but nevertheless, it has more than doubled

In the past decade, total U.S. debt from during the decade.the government, corporate non-financialbusiness and household sectors has nearly Is U.S. Debt Really Too Large?tripled, jumping from $3.9 to $10.6 trillion Comparing an economy's total debt to(see figu,re 1 and table 1). Households and its total income, or GNP, reveals how well itnon-financial. businesses hold the largest can support its debt level. As total incomeshares of total debt, $3.7 trillion and $3.5 increases, so does an economy's ability totrillion respectively (see' figu,re 2). These take on a larger amount of debt.amounts are more than double their 1980 The total current U.S. debt burden oflevels. Yet their percentage shares of total $10.6 trillion is almost twice the nation's $5.4debt have actually fallen slightly due to the trillion GNP. Figu,re 3 shows the growth in

total debt consistently outpacing total na-Figure 1 tional output throughout the past decade.

Total U.S. Debt b Sector ~ is true for all categ.ories of public andY pnvate debt, and by this measure as well,

Selected Calendar Years 1960-1990 the federal government is racing into in-12 debtedness faster than any other sector of

1 0 the economy.The federal debt, more commonly

8 known as the public debt, is the accumu-

$Trillions 6 lated amount of money and interest coststhe federal government has borrowed

4throughout the years to fund budget short-

2 falls. Between 1981 and 1991, federal gov-0 ernment debt almost doubled as a percent-

1960 1965 1970 1975 1980 1985 1990 age of GNP, increasing from 27 to 47 percent. . of GNP. Non-financial business debt rose 11. Non-Financial. Households D State/Local. Federal

Business Governments Government percentage points from 52 to 63 percent ofSource: Tax Foundation GNP, and during that same time period,

Gregory S. Leong is Director of Special Studies at the Tax Foundation.

.Special Report 2~

A Nation in Debt

Table 1Total U.S. Credit Market Debt Outstanding by Sector

Per Capita and Percent of Gross National ProductSelected Calendar Years 1960-1991

($Billions except per capita)Total Debt Outstanding Federal GovernmentS State/Local Governments Households Non-Financial Businesses

Per Percent Per Percent Per Percent Per Percent Per PercentTotal Capita of GNP Total Capita of GNP Total Capita of GNP Total Capita of GNP Total Capita of GNP

1960 $727.3 $4,026 141.1% $236.3 $1,308 45.9% $72,0 $399 14.0% $218.2 $1,208 42.3% $200.8 $1,111 39.0%1965 1,011.6 5,206 143.5 262.4 1,350 37.2 103.1 531 14.6 343.2 1,.766 48.7 302.9 1,559 43.01970 1,424.4 6,947 140.3 300.8 1,467 29.6 150.3 733 14.8 471.8 2,301 46.5 501.5 2,446 49.41975 2,256.0 10,446 141.1 446.3 2,066 27.9 219.4 1,016 13.7 750.4 3,475 46.9 839.9 3,889 52.51980 3,897.7 17,116 142.7 742.8 3,262 27.2 286.6 1,259 10.5 1,430.2 6,281 52.3" 1,438.1 6,315 52.61981 4,279.6 18,611 140.2 830.1 3,610 27.2 303.7 1,321 9.9 1,549.2 6,737 50.8 1,596.6 6,943 52.31982 4,667.6 20,104 147.4 991.4 4,270 31.3 331.4 1,427 10.5 1,626.3 7,005 51.4 1,718.5 7,402 54.31983 5,208.5 22,230 152.9 1,177.9 5,027 34.6 355.0 1,515 10.4 1,791.9 7,648 52.6 1,883.7 8,040 55.31984 5,959.4 25,215 158.0 1,376.8 5,825 36.5 383.0 1,621 10.2 2,018.8 8,542 53.5 2,180.8 9,227 57.81985 6,804.5 28,534 169.5 1,600.4 6,711 39.9 473.9 1,987 11.8 2,296.0 9,628 57.2 2,434.2 10,208 60.61986 7,646.3 31,772 180.7 1,815.4 7,543 42.9 510.1 2,120 12.1 2,596.1 10,788 61.4 2,724.8 11,322 64.41987 8,343.9 34,362 184.8 1,960.3 8,073 43.4 558.9 2,302 12.4 2,879.1 11,857 63.8 2,945.6 12,131 65.21988 9,096.0 37,119 186.6 2,117.8 8,642 43.5 604.5 2,467 12.4 3,191.5 13,024 65.5 3,182.2 12,986 65.31989 9,805.3 39,641 188.5 2,269.4 9,175 43.6 634.1 2,564 12.2 3,501.8 14,157 67.3 3,400.0 13,746 65.41990b 10,317.6 41,275 188.8 2,450.4 9,803 44.8 642.2 2,569 11.8 3,731.8 14,929 68.3 3,493.2 13,974 63.91991c 10,636.6 42,277 191.4 2,624.7 10,432 47.2 648.6 2,578 11.7 3,860.2 15,343 69.5 3,503.1 13,924 63.0

S Federal government debt excludes portion held by Federal Reserve and government agencies.b 1990 figures based on quarterly average.c 1991 figures based on first quarter statistics.

Source: Board of Governors of the Federal Reserve System, Bureau of Economic Analysis, Department of Commerce, Bureau of the Census; and Tax Foundation

computations.

F' 2 household debt jumped from ample, economic growth is fostered throughIgure 51 percent of GNP in 1981 to 70 debt financing when corporations borrow

Total U.S. Debt by Sector percent in 1991. from capital markets and use those resources1990 The figures above would not to create economies of scale.

75% be nearly as surprising if the However, the ability of governments to33.86% 1980s had been a period of eco- sustain debt without impeding economic

nomic stagnation. On the con- growth depends on the size of interest pay-6.22% trary, GNP grew at the robust ments. As these payments increase, they

rate of 7.4 percent (see table 2). inhibit the nation's ability to payoff theBut total debt accumulated at a principal amount of the debt and reduce

36.17% 10 percent rate, with all catego- funds available for consumption and in-riesofdebtexceedingthegrowth vestment. This is a high price to pay for the

1980 of GNP. Federal government privilege of overspending.6% debt and household debt led the In 1990, the federal government's net

36.90% k . 12 d . t t (. t t .d t .pac, grOWIng at percent an mteres paymen s meres pal ou mmus7.35% 10 percent respectively. The debt interest received) totaled $186.3 billion. This

of non-financial businesses and amounts to 15 cents of every dollar spent bystate/local governments slightly the federal government compared to the 9outpaced GNP with rates of 9 cents per dollar it spent on interest in 1980.

36.69% and 8 percent respectively. Consumers also increased their interest. d G payments, though not so dramatically, byFe eral overnment . . ... ..0 State/Local Governments RIsing Interest Payments making $371.4 billion m mterest payments. Households It is important to note that in 1990, or 10 cents of every dollar spent, up. Non-Financial Business . . . d 11 fr 8 . . all mdebtedness IS not detrl- 3 cents per 0 ar om 19 o. Net mterest

Source: Tax Foundation mental to the economy. For ex- payments of non-financial corporations ac-

-~ C"",k'."'~",",,~""'-""

Special Report 3.A Nation in Debt

counted for 37 percent of net cash flows in revenues jumping 91 percent over the de-1990, up from 25 percent in 1980 (see figure cade, federal spending has increased at a4). (Net cash flow equals corporate profits slightly faster rate of 94 percent, averagingplus depreciation before interest and taxes.) $60 billion annually. Growth of spending,Unlike the federal government, state and with the exception of 1987, has consistentlylocalgovernmentsearnedmoreinterestthan outpaced the rate of inflation which led to athey paid out, generating $41.6 billion in decade of monumental deficits.1990 revenues (see table 3). Starting the decade with a $73.8 billion

deficit in FY80, lawmakers nearly tripledWashington's Annual Monument: that in two years. Even the significant defi-The Federal Budget Deficit cit reductions in FY84 and FY87 failed to

The federal government led the economy arrest the trend (see table 4). Lawmakersfurther into debt during the 1980s with its have not passed a ]Judget that has paid forrecord spending levels. Despite federal tax itself since 1969. Now with an expected

FY92 budget deficit of $348 billion, publicFigure 3 debt and its associated interest costs are

expected to pass the $5 trillion mark byGrowth of Total Debt vs. Growth of GNP FY95.

1980-1990 While federal debt is the largest portion16%I of U .S.liabilities, it is by no means the total.14% ---, -.- Total liabilities include not only the public

Total Debt .0 - --0- debt but also accounts payable, pensIons,

12'/0 d . lli bill' . h tGNP an actuana a ties suc as ve erans10% compensation. In 1989, total liabilities for

8% the federal government totaled $3.77 tril-6% lion, $1.61 trillion more than the public debt

reported (see table 5).4% Furthermore, no liability for Social Se-

2% curity is included in the U.S. Government

0% Statement ojLiabilities. The actuarial liability1980 1981 .1982 1983 19 4 198 0 as of September 30, 1989 was $6.08 trillion,

Source: Tax Foundation which represents the present value of the

projected future benefit payments to presentparticipants minus the contribution still to

Table 2 be made by the same group and their em-. . ployers on their behalf.

Growth In Debt vs. Growth In GNP by Sector Wh I kin t J: d ld bt ' t ' ten 00 ga Ie era e ,1 IS no e-Calendar Years 1980-1990 worthy that the federal government owes aFederal State and Local Non-financial portion of the debt to itself. The Federal

Total Government Governments Households Business GNPR d th t .

eserve an 0 er governmen agenCIes1980 9.5% 11.9% 4.3% 9.1% 9.7% 8.9% . .1981 9.8 11.8 6.0 8.3 11.0 11.7 own approXImately 25 percent of It. Gross1982 9.1 19.4 9.1 5.0 7.6 3.7 public debt, including the portion held by1983 11.6 18.8 7.1 10.2 9.6 7.61984 14.4 16.9 7.9 12.7 15.8 10.8 the Federal Reserve and governmentagen-1985 14.2 16.2 23.7 13.7 11.6 6.4 cies,reached$3.2trillioninFY90,or$12,8271986 12.4 13.4 7.6 13.1 11.9 5.4 J: d hild ' th U S1987 9.1 8.0 9.6 10.9 8.1 6.7 lor every man, woman an c ill e ..1988 9.0 8.0 8.2 10.9 8.0 7.9 After adjusting for federal agency owner-1989 7.8 7.2 4.9 9.7 6.8 6.7 ship, the federal debt was $2.4 trillion or1990 5.2 8.0 1.3 6.6 2.7 5.1Average 10.2 12.7 8.1 10.0 9.4 7.4 $8,705 per capita (see table 6).Source: Board of Governors of the Federal Reserve System, Bureau of Economic Analysis,

Department of Commerce; and Tax Foundation computations.

;1)i~~ .

SpecialReport 4.A Nation in Debt

State and Local Debt remained at a fairly consistent rate of 11State and local government debt makes percent in the past decade. Though consti-

up the smallest portion of the debt pie. It tuting only 6 percent of total debt, it hastotaled $648.6 billion in 1990, and as a per- more than doubled from its 1981 level ofcent of GNP, state/local government debt $303.7 billion.

In light of the current fiscal crises in. many states, debt levels for state govem-

Figure 4 ments are likely to grow more rapidly in the

Interest Payments as a Percent of Outlays by Sector 1990s than they did in the 1980s.

Selected Calendar Years 1960-1990 Household Debt40% Household debt, comprised mainly of

35% mortgages and coLlSumer credit, increased° nearly 20 percentage points from 52 percent30 '/0 of GNP in 1980 to 70 percent in 1990. Consti-

25% tuting the largest portion of total debt,

20% household debt peaked in 1990 at $3.9 tril-15% lion, or $15,343 for every person in the United

States.1 0% The rising trend in household debt is .5% illustrated by the increase in consumer credit,0°;; both installment and noninstallment credit

1960 1965 1970 1975 1980 1985 1990 over short and intermediate terms. Install-. D . Corporate Non-Financial d. . I d I .d .Consumer Federal Government Businesses ment cre It mc u es oans pal over timeSource: Tax Foundation such as credit cards and bank loans.

, Table 3

Net Interest Payments by Sector a

Selected Calendar Years 1960-1991

($Billions)Federal Government State & Local Governments Corporate Non-Financial C Consumer

Net Interest Net Interest Net Net Interest Interest InterestNet As a Percent Net As a Percent Net Cash As a Percent of Personal as a Percent

Interest Outlays of Outlays Interest Outlays of Outlays Interest Flow ~ Net Cash Flow All Othere Mol1gage Total Outlays of Outlays

1960 $6.8 $93.9 7.2% $0.1 $49.9 0.2% $3.5 $35.0 10.0o~ $7.0 $7.0 $14.0 $338.1 4.1%1965 8.4 125.3 6.7 -0.3 75.5 -0.4 6.1 59.2 10.3 11.1 11.1 22.2 452.5 4.91970 14.1 207.8 6.8 -1.8 134.0 -1.3 17.1 66.5 25.7 16.7 16.6 33.3 657.9 5.11975 23.0 364.2 6.3 -4.2 235.2 -1.8 28.7 128.8 22.3 24.4 32.3 56.7 1,038.2 5.51980 53.3 615.1 8.7 -17.0 363.2 -4.7 55.5 226.3 24.5 47.4 77.2 124.6 1,781.1 7.01981 72.4 703.3 10.3 -20.1 391.4 .-5.1 67.5 251.3 26.9 52.0 89.6 141.6 1,968.1 7.2.1982 84.6 781.2 10.8 -24.4 414.3 -5.9 76.6 239.2 32.0 55.5 100.8 156.3 2,107.5 7.41983 94.3 835.9 11.3 -26.2 440.2 -6.0 69.8 280.3 24.9 61.9 113.5 175.4 2,297.4 7.61984 115.6 895.6 12.9 -28.4 475.9 -6.0 80.3 325.2 24.7 72.5 129.7 202.2 2,504.5 8.11985 130.1 985.6 13.2 -32.4 516.7 -6.3 81.1 337.5 24.0 82.6 143.3 225.9 2,713.3 8.31986 135.6 1,034.8 13.1 -34.4 563.5 -6.1 88.4 324.9 27.2 89.1 151.8 240.9 2,888.5 8.31987 142.3 1,071.9 13.3 -34.9 604.1 -5.8 93.2 372.2 25.0 90.7 162.8 253.5 3,102.2 8.21988 151.3 1,114.2 13.6 -38.5 651.1 -5.9 98.0 407.5 24.0 93.6 176.7 270.3 3,333.6 8.11989 172.0 1,187.2 14.5 -40.2 703.5 -5.7 120.5 374.2 32.2 102.2 196.5 298.7 3,553.7 8.41990 186.3 1,275.7 14.6 -41.6 765.1 -5.4 128.4 348.6 36.8 107.8 263.6 371.4 3,766.0 9.91991b 194.3 1,261.4 15.4 -42.6 797.8 -5.3 126.3 333.0 38.0 108.6 n.a. n.a. 3,852.5 n.a.-a Consumer sector excludes interest received.b 1991 figures based on June 1991 data.

C Domestic non-financial corporations.d Net cash flow computed by summing undistributed profits, capital consumption allowances, and capital consumr-lion adjustments.

e Includes interest on all consumer debt instruments except mortgages.

Source: Bureau of Economic Analysis, Department of Commerce and Tax Foundation computations.

,

",~~ -- --

!

Special Report 5A Nation in Debt

$782.3 billion, up 110 percent from 1981'sTable 4 Table 5 level of $372.3 billion. Installment credit was

Federal Government Consolidated Statement of responsible for the majority of this increaseBudget Deficits Liabilities of the United States (see table 7).

Fiscal Years 1980-1992 Government as of The rise in consumer debt can also be. . September 30 1989 illustrated by the rapid jump in consumer($Blilions) , ed. d hr h h($Billions) cr It car usage t oug out t e 1980s.

Budget Percent While credit card spending rose 93 percent,Deficit Change Liabilities 1989 from $205.4 billion in 1980 to $397.1 billion

1980 $73.8 - Debt Issued Under Financing Authority $2,188.8 in 1988 credit card debt increased at an even1981 78.9 6.9% Public Debt 2,165.1' .1982 127.9 62.1 Agency Debta 23.7 faster rate of 122 percent from $81.2 billion1983 207.8 62.4 Pens}~~ and Actuarial Liabilities 1,235.5 to $180 billion. Credit card debt as OPposed1984 185.3 -10.8 CIVilian Employees 586.3 . ' .1985 212.3 14.5 Military Personnel, 446.3 to spendmg, refers to the debit balance1986 221 2 42 Veterans Compensation 135.2 t .ed fr th t th. . Federal Employees Compensation 21.2 amoun cam over om mon 0 mon~~~~ ~::.~ -3~.~ Other Pension Plans and Benefits 46.5 (see table 8).. . Accounts Payable 163.71989 153.4 -1.1 Interest Payable - 41.41990e 220.4 43.7 Accrued Payroll and Benefits 12.5 Non-Financial Business Debt1991 282.2 28.0 Unearned Revenue 23 21992e 348.3 23.4 Other Liabilities 112:2 Second only to households, the non-e E t. t b d Off ' f Total Liabilities $3:777:3 financial business sector is the largest bor-sima ease on Ice 0Management and Budget's Mid- a Includes liabilities ~eld by Federal Deposit rowing sector in the economy. During a

Session Review. Insurance Corporation, Tennessee ValleySource: Office of Management and Auth,ority, Dept. of, Treasury, Labor, Defense, decade famous for leveraged buyouts and

Interior, and Housing and Urban Development, .unk b d fin . ..Budget, Source: Financial Management Service, Department J on anCIng, debt for non-finanCIal

of Treasury. businesses leaped from $1.4 trillion in 1980

to $3.5 trillion in 1991.Noninstallment credit refers to single pay- A comparison of total debt to total eq-ment loans such as bridge loans, service uity is a good indicator of business' ability tocredit,andAmericanExF'resscreditcharges handle debt. Debt-equity ratios reflect thethat are required to be paid in a lump sum. percentage of corporate debt leveraged byCurrent consumer credit for 1991 totals owners' equity. As business leverage in-

Table 6

Trends in Federal DebtFiscal Years 1980-1991

($Billions Except Per Capita),,:, a

Gross Federal Debt

Public Debt Gross Federal Debt Net Federal Debf

Held by Held by Per % of Per % ofYear ~ Gov't Accounts Total Federal Reserve Other Capita GNP Capita GNP1980 $908.5 $199.2 $709.3 $120.8 $588.4 $3,990 34.0% $2,584 21.5%1981 994.3 209.5 784.8 124.5 660.3 4,324 33.3 2,872 21.61982 1,136.8 217.6 919.2 134.5 784.7 4,896 36.2 3,380 24.81983 1,371.2 240.1 1,131.0 155.5 975.5 5,852 41.3 4,164 28.61984 1,564.1 264.2 1,300.0 155.1 1,144.8 6,618 42.4 4,844 30.31985 1,817.0 317.6 1,499.4 169.8 1,329.6 7,619 46.0 5,575 33.11986 2,120.1 383.9 1,736.2 190.9 1,545.3 8,810 50.7 6,421 36.51987 2,345.6 457.4 1,888.1 212.0 1,676.1 9,660 53.0 6,903 37.11988 2,600.8 550.5 2,050.3 229.2 1,821.0 10,613 54.4 .7,431 37.41989 2,867.5 677.2 2,190.3 220.1 1,970.2 11,593 55.9 7,965 37.91990 3,206.3 795.9 2,410.4 234.4 2,176.0 12,827 59.3 8,705 39.819918 3,617.8 900.2 2,717.6 n.a. n.a. 14,380 64.4 n.a. n.a.

a End of fiscal year.b Net federal debt equals gross federal debt less portion held by Federal Reserve and government accounts,

Source: Office of Management and Budget, Bureau of Census, and Tax Foundation computations.

f'"""

-- .

SpecialReport 6ANation in Debt

creases, the fear of losing potential future to 73 percent. ill the last decade, ratios aver-investment and growth increases. In past aged 70 percent, with a low of 64 percent indecades, debt-equity ratios for non-finan- 1983 and a high of 76 percent in 1984 (seecial corporate businesses have generally re- table 9). When businesses have such a highmained below 50 percent of equity, averag- debt-equity ratio, they subject themselvesing 50 percent in the 1950s and 43 percent in to a greater risk of failure during businessthe 1960s. As inflation and recession hit problems or recessionary times.during the 1970s, debt equity ratios jumped

ConclusionTable 7 Despite the tremendous span of eco-

nomic growth in the 1980s, total debt con-Total Consumer Credit tinued to outpace GNP. Debt within every

Calendar Years 1981 and 1991 sector of the economy has reached record($Billions) levels. In order to support future debt lev-

els, interest payments will only increase. 1981 19918 and result in reduced purchasing power.

Total Consumer Credit $372.3 $782.3 The continued combination of astronomi-Installment Credit 315.5 725.5 1d fi . th L_.J 11 1 . .

Nonfarm noncorporate business 1.9 2.4 . ca e crts at e It:u.era eve, mcreasmgNonfinancial noncorporate business 15.4 17.8 debt among consumers and high debt-Commercial Banks 147.6 335.8 " b '. "Savings and loans associations 12.4 36.3 eqwty ratios among usmesses will YIeldMutual savings banks 3.8 6.2 record level debts and interest payments.Credit Unions 46.0 90.8 All Id ..Finance companies 88.5 154.2 to , these factors could ultimately hinder

SCO issuers 82.1 strong economic growth during the 1990s.Noninstallment credit 56.8 56.9

Nonfarm noncorporate business 2.5 3.9 Table 9Nonfinancial noncorporate business 9.9 15.4Commercial Banks 36.6 35.4 D bt E "t R t " fSavings and loans associations 5.6 1.2 e - quI y a 10S orMutual savings banks 2.3 1.1 Non-financial Corporate

8 Firsiquarter estimates. BusinessesSource: Board of Governors of the Federal Reserve

S I d CSystem. e ecte alendar Years 1960-1990

($Millions except ratio)

Table 8 Credit Market Market Value Debt-EquityDebt Equities8 Ratio

Consumer Credit Card Spending and Debt 1960 $153.7 $354.1 43.3%1965 219.8 553.7 39.6

Selected Calendar Years 1980-1988 1970 352.5 648.5 54.3

($Billions except number of cards) 1975 532.8 684.3 77.81980 828.8 1,293.1 64.0

Number of Cards (Millions) Credit Card Spending Credit Card Debt. 1 ~88~ 926.6 1,214.8 76.21 970.0 1,382.8 70.1

Type of Credit card 1980 1985 1988 1980 1985 1988 1980 1985 1988 1983 1,049.4 1,638.7 64.0

Bank 110.6 161.4 197.8 $52.9 $125.9 $189.9 $25.0 $65.6 $113.5 1984 1,223.9 1,617.7 75.6Travel and entertainment 10.3 18.8 24.2 21.2 51.0 84.6 2.7 6.4 12.3 1985 1,362.4 2,022.6 67.3Retail Store 290.5 341.0 400.9 74.4 90.0 64.9 47.3 50.5 41.8 1986 1,570.6 2,332.6 67.3Oil company marketers 109.6 117.0 118.6 28.9 28.8 21.9 2.2 2.7 2.5 1987 1,724.6 2,344.0 73.5Other' n.a. n.a. 118.0 28.0 27.0 35.8 4.0 2.8 9.9 1988 1,899.5 2,576.7 73.7Total n.a. n.a. 859.5 205.4 322.7 397.1 81.2 128.0 180.0 1989 2,064.8 3,211.4 64.28 1990 2,177.1 2,925.1 74.4

Includes airline, automobile rental, telephone company, hotel, motel, and other miscellaneouscredit cards. 8 Includes corporate farm equities.

Source: HSN Consultants Inc., Los Angeles, CA, The Nilson Report; U.S. Department of Source: Board of Governors of the Federal ReserveCommerce, Bureau of the Census. System.

The Tax Foundation, a nonprofit, nonpartisan research and public education organiwtion, has beenmonitoring tax and fiscal activities at all levels of government since 1937.

Tax Foundation. 470 L'Enfant Plaza, SW, Suite 7400 . Washington, DC 20024 . (202) 863-5454

,-.~