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Discussion: (8 comments)

  1. Todd Mason

    This would make sense if indeed there were two classes of citizens: lenders and borrowers. The fact is that most of us are borrowers in our house-buying, child-rearing years, and, one hopes, most of us will be lenders once the house is paid and kids move out.
    Ditto for the taxpayer role. I paid plenty of taxes in my working years. Now, as a retiree, I don’t, unless it is my choice to do so.
    And forget about the beleaguered future generations. The real risk in excessive govt spending is inflation that would erode the buying power of people like me who have no way to recover. I believe we can say Krugman had that one right. Even the WSJ has stopped worrying about runaway interest rates.
    I believe Krugman has the other part right, too. The priority today is get workers, particularly young workers, in jobs that pay taxes and support the loans they need to build households.

  2. the “debt” we owe ourselves is for taxes collected for earmarked purposes.

    For instance, we collect fuel taxes to build highways with but we put them in a trust fund until they can be obligated.

    When we put them in a trust fund – what we really do is give the money to the treasury to spend on bills and give the highways folks redeemable IOUs – no different than the IOUS we sell publically.

    so it’s a temporary loan from the highway fund so that the govt can defer selling more treasury notes to the pubic to finance debt – right away.

    but ultimately the highway folks have to be paid back and they are paid back by selling treasury notes to the public and the money then given back to the highway folks.

    the Military Retirement Trust Fund works the same way.

    as does Social Security .. Medicare and 100 more trust funds.

    this is not a difficult concept but I find that folks like AEI tend to not try to explain it in simple terms and for some “scholars” in AEI – outright misinformation and disinformation with regard to trust funds and how they really work.

  3. Stephen Sprague

    Is there any sort of study as to who in the US holds the debt? I know the Fed holds a lot of it. I would imagine that much of the debt is held by wealthy individuals as they are more likely to have excess earnings to save and invest – a portion of which will go to invest in government bonds.

    The argument above seems to believe that the bonds are held by middle class and poor Americans. I find that argument to be highly suspect. The more likely scenario is that many people pay higher taxes to pay themselves interest on government bonds.

  4. Todd Mason

    A little over $1 trillion of the U.S. debt is held by private investors, banks, trust funds, corporations et al. Foreign entities own about $5 trillion. Most of the rest is held for retirement by private and public pension funds and the Social Security trust fund, which hands over excess payroll taxes to the Treasury and takes back paper.

    So, yes, the middle class does in fact have more aggregate skin in the game than the wealthy.

    1. Stephen Sprague

      Thanks for clarifying that Todd. I hadn’t factored in Social Security and public/private pension trusts.

      1. social security is about 1/2 of the internal debt at 2.1 Trillion or so.

        1. Thomas Sullivan
          1. interesting… I though SS used about 30 billion more than FICA revenues and took money out of the trust fund.

            this says that FICA ended up with a surplus.

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