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1 Chris R. Edwards, Federal, State, and Local Debt Piles up 1 (1994)

handle is hein.taxfoundation/sreaxz0001 and id is 1 raw text is: TAX 11 ___ FOUNDATION October 1994 Number 40 Federal, State, and Local Debt Piles Up Government Debt Stands at $16,835 Per Person By the end of 1993, federal, state, and lo- cal governments in the United States owed $4.4 trillion in credit market debt, an average of $16,835 for each American. This total means that governments are the largest bor- rowers in the country-ahead of households, which borrow for home mortgages and other uses, and ahead of corporate and noncorporate businesses, which borrow to fi- nance investments in buildings, machines, and other items (see Figure 1). Of the total, the federal government owes $3.3 trillion while Figure 1 Credit Market Debt Outstanding by Borrower, End of 1993 $4,500 $4,000 $3,5OO $3,000 0 $2,500 0 $2,000 $1,500 $1,000 $500 $0 t $BUE5E Federal, State, & Local Governments Source: Federal Reservc Board. Households Corporate Business Non-Corporate Businesses state and local governments owe $1.1 trillion. At the federal level, debt has been rising quickly as each annual deficit adds to the total accumulated national debt. Any notion of ever paying off the debt seems distant as the federal budget has not been balanced since 1969-an unprecedented 26-year string of budget short- falls. The second worst string of unbalanced budgets in U.S. history occurred during the Great Depression and World War II when 16 budgets in a row went unbalanced. While overshadowed by concern about the national debt, state and local government debt has been piling up quickly since the early 1980s as well. Factors contributing to rising state and local debt levels are discussed start- ing on page 4. Trends in Federal Debt The July Mid-Session Review from the Office of Management and Budget (OMB) projects that gross federal debt will rise to $6.26 trillion by fiscal 1999-an addition to the national debt of $1.59 trillion in just the next five years (see Table 1). Even when mea- sured in constant dollars, federal debt rises 16 percent by fiscal 1999, as shown in Figure 2. As the federal debt rises, so do budget out- lays required for interest payments. Interest outlays totalled $204 billion in fiscal 1994 and represented 13.8 percent of all federal outlays. Interest outlays will increase to $282 billion, or 15.2 percent of all outlays, by fiscal 1999, ac- cording to OMB projections. The federal debt has become large enough that interest payments are expected to con- tinue moving upwards even as the deficit is somewhat lower in the next few fiscal years (see Figure 3). Since outlays for interest have By Chris R. Edwards Econonmist Tax Foundation $4,394

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