Question

1. How is a public debt created? And what are the impacts on society? What kinds of changes can we expect in government spending OR tax increase OR BOTH to bring the deficit down?

2. Is the current administration and congress succeeding in reducing the debt? How and why/why not? How has the debt changed since 2000

Answer 1

The public debt is created when the government borrows money from the market by issuing treasury instruments to meet the excess funds requirement or say to meet the deficit requirement. The deficit is the excess of expenditure of the revenue income. To bring down the deficit level the government can opt to increase the tax rate on corporate earnings as well as on other goods and services and it can also choose to cut the spending in the public expenditure or it can choose to do both to reduce the impact on any side significantly.

It does not seem that the current US government or the congress is able to reduce the deficit as certain section of the political system beliefs that despite such high levels of debt the US government would not default on its obligation and the deficit is required to continue to support the growth of the economy. The debt as percentage of GDP has grown significantly in US, not reduced. In 2000 the US government debt as percentage of GDP was approximately 56% which has grown significantly over the years to more than 100% of its GDP is 2019. The major concern is how much debt US can sustain despite having a large creditworthy market.