Interest on US Debt: $8,000 Per Second

CONGRESS finally neared completion of its work on the fiscal year 1990 budget on Tuesday afternoon. The budget document - the result of negotiations between Senate and House leaders - was expected to go to President Bush for his signature. The following is a primer on the subject: How big is the federal budget deficit today?

The United States Treasury says the deficit was $152.1 billion as of Oct. 1, the start of the 1990 fiscal year. The government spent $1.142.9 trillion and had revenues of $990.8 billion in 1989.

Is the deficit growing or shrinking?

The 1989 deficit shrank by $3.1 billion compared to fiscal 1988's. It has also been falling as a percentage of gross national product - 2.9 percent now, down from a high of 5.7 percent in 1986. GNP is a measure of the nation's total production of goods and services.

How big is the national debt?

Congress voted Nov. 7 to raise the borrowing limit to $3.123 trillion (up $300 billion) to keep the US government solvent.

Is the national debt growing or shrinking?

It grows every year by the amount borrowed to pay for the budget deficit. Thus, since 1970 it has increased by $2.419 trillion. The interest on the debt grows by $8,000 per second and now represents 15 percent of the total budget.

How much of the debt is held by foreigners?

According to the Treasury, $334.3 billion, or 11.9 percent in debt was held by foreigners as of Sept. 30, 1988. The Japanese were the largest foreign owners of Treasury securities.

Doesn't Congress have a timetable to reduce the budget deficits?

Yes, the Gramm-Rudman-Hollings Deficit Reduction Act. The sponsors were Senators Phil Gramm (R) of Texas, Warren Rudman (R) of New Hampshire and Ernest Hollings (D) of South Carolina. According to the December 1985 law, each budget estimate must lower the deficit by a predetermined amount.

Is Congress keeping to that schedule? Not at this point. The fiscal year 1989 target was $136 billion. Instead, the actual deficit was $155.2 billion. For the fiscal year, ending Sept. 30, 1990 the deficit target is $100 billion. To give themselves a cushion, Congress allows an additional $10 billion. By 1991, the deficit must be reduced to $64 billion and by 1993, it must be eliminated.

What happens if Congress does not meet the targets? Automatic spending cuts take place. This is called sequestration. These cuts have already been decided for the current fiscal year. They are $8.1 billion out of defense and $8.1 billion out of social programs. However, with the budget agreement, only $4 billion of the cuts will be enacted.

How does Social Security fit into the budget? Social Security payments are deposited into a trust fund that will have an estimated surplus of $64 billion in fiscal 1990. This fund is off-budget - it can only be used for Social Security - but Gramm-Rudman does allow it to be calculated in with the regular budget so the deficit will appear smaller.

Does the size of the budget deficit really matter? Economists are divided over this issue. No, says Paul Davidson, a professor at the University of Tennessee. ``Debt is not always bad. The important thing is that jobs are created,'' says the professor, who served in the Johnson administration. However, Frank Wykoff, a professor at Pomona College and the Claremont Graduate School, replies that there is a real cost to the deficit since the government has to borrow to finance it. ``If you look at interest rates in the '50s when we didn't have deficits this size, the real rates were only 1, 2, or 3 percent. Today, real rates are very high.''

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