Concern over the rising U.S. Debt.

• Author: Miller, Matt
• Position: Washington insights

The federal government responded assertively to the recent economic crisis with a series of legislative, regulatory and monetary interventions. Though most economists believe we are headed in the right direction, unemployment levels remain extremely high and serious mid- and long-term fiscal issues are apparent.

Most Washington insiders have been aware for some time of the long-term fiscal issues that pose a potential threat to the United States' economy. However, the subject historically has been viewed as taboo or off-limits for open policy debate.

For example, congressional leaders intentionally avoided a roll-call vote on the debt limit increase--by utilizing a maneuver known as the "Gephardt rule" for its author, former Rep. Richard Gephardt--when the House raised the debt limit as part of the budget resolution earlier this year.

Recent polls show a rising public concern over the growing debt as well as concern that future generations may suffer if the current fiscal course continues. An August Financial Times article even reported on a recent opinion poll that showed "Americans giving higher priority to reducing deficits than to reviving the economy."

Clearly, this sharp attention to the U.S. debt will complicate matters for policymakers as they consider additional economic recovery measures. Moreover, some economists are concerned that the prospect of tax increases to mitigate the deficit may have a detrimental impact on business investment.

Investment guru Warren Buffett also thinks a tax hike is on the horizon. In a recent interview with Bloomberg News, he said, "With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can't come close to bridging that sort of gap."

Along with potential tax increases, other pivotal issues to be addressed in future discussions about the debt include the rising debt ceiling and ownership of the U.S. debt.

U.S. Debt Ceiling

The U.S. has been debt-free only once--in 1834-35--since it first financed the Revolutionary War. After years of increasing this debt, Congress imposed a cap (known as the debt ceiling) on how much debt the country can carry. Not surprisingly, the debt ceiling has been raised 90 times in the past 69 years, according to the Office of Management and Budget.

The debt ceiling as of Oct. 1 was $12.1 trillion and to avoid default, it will have to be raised one more time before this article goes to...