Tennessee Families Impacted by National Debt
By: U.S. Congressman Lincoln Davis

Among the many issues I have addressed as a Member of Congress one concerns the debt our federal government has been accruing, which is now more than $7.5 trillion. The debt has a negative impact on our current economy, but will certainly have a negative impact on our children and grandchildren as they will have to pay off the debt we are creating today. As it keeps growing, it will continue to impact our families in Tennessee, who have to pay interest on every dollar the federal government borrows.

With the intent of showing how the debt is relevant to all of us and what needs to be done to fix it, I am presenting a list of general questions and answers about this extremely important issue.
This is the first installment in what will be a series of articles where I will continue addressing the problem of our nation's growing debt and how it affects us.

What's the national debt? It's the total sum of funds the federal government has borrowed over the years and has yet paid back.

What's the federal deficit? The amount the government spends each year in excess of what its tax, tariffs and fee revenues bring in. The government must borrow to make up the difference. When deficits accrue year after year it makes up the total national debt.

Why do we have a deficit? Deficits are created when the government makes commitments to spending programs without a way to pay for them. As a result, the government has to borrow money.

How does the government borrow money? The U.S. Treasury issues securities such as savings bonds and Treasury bills, notes and bonds. Lenders buy these securities, and the money goes to the government. In return, the government pays interest to the owners of the securities.

Who pays the interest payments on the debt? U.S. taxpayers shoulder this responsibility. In 2003, interest on the debt amounted to nearly $322 billion, or 18 percent of federal government revenue. This interest must be paid every year.

Have you heard me call interest on the debt a "debt tax?" When the federal government borrows to make up for revenue shortfalls, we have to pay interest on the securities that the Treasury Department sells. I call these interest payments a "debt tax" because American taxpayers will need to continually make these payments every year until the federal debt is paid off.

Who owns our debt? Ownership of U.S. government securities consist of U.S. citizens, Federal Reserve banks, foreign governments and corporations.

Who determines how much interest is paid on the securities? Interest is the price of credit, and, as in any competitive market, prices are determined by supply and demand. The Federal Reserve, the nation's central bank, auctions the securities on behalf of the U.S. Treasury. The securities go to the highest bidders.

What does "fiscal year" mean? For budget purposes, the government year runs from October 1 to September 30; this is called a fiscal year. For example, the 2005 fiscal year starts October 1, 2004, and ends September 30, 2005.

Could the government create more money to pay off the debt? Unfortunately, it's not that easy. The federal government doesn't create money; that's one of the jobs of the Federal Reserve. The Fed's monetary policy tries to influence the supply of money in the economy to promote non-inflationary growth. Creating money to pay off the debt won't work. Unless there is an increase in economic activity proportionate with the amount of money that is created, inflation could get worse.

Is there a limit as to how high the debt can go? There is a "debt ceiling", but Congress and the President at times approve legislation to raise it, allowing the federal government to borrow more money.

How do we address the debt and deficits? The federal government must end the irresponsible practice of spending more money then it receives in revenue. Moreover, Congress and the President must make a firm commitment to balancing the federal budget. The last time the federal government balanced the budget was in the mid 1990s.

I hope this information is helpful as we continue talking about these matters and why it's imperative we need to address them now.

U.S. Rep. Lincoln Davis represents the 4th Congressional District of Tennessee in the U.S. House of Representatives and is a member of the Blue Dog Coalition, a group of House Democrats dedicated to fiscal responsibility.