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Economist worries about rising level of federal debt
Herald Tribune
May 8, 2006

Americans are so busy trying to keep up with their own debt that the ocean of red ink flowing through the federal government has yet to sound alarms.

But with the government's debt piling up at the rate of $1.5 billion a day, it's only a matter of time before Americans feel the pain, says economist Janet Norwood.

Norwood, a part-time Venice resident, was the commissioner of the Bureau of Labor Statistics under President Clinton. Prior to that, she served as an adviser to President George H.W. Bush.

"A lot of people really don't understand what a large deficit means," Norwood said. "It's not tangible for them until a there's a higher income tax -- and that's really a big worry.

"Many of us have children and grandchildren. Someone has to do something about it as some point."

The national debt totals more than $8 trillion, which translates into more than $27,000 owed by every American man, woman and child. With massive expenditures, such as Social Security and health care for baby boomers, looming on the horizon, the government's burden is expected to grow.

Compounding the problem is that more than 22 percent of the U.S. debt is held by foreign investors such as China. If foreigners slowed their investment, it could force the U.S. to raise interest rates to attract other investors, increasing the debt even more.

Most remarkable about the huge surge in the federal debt is that just a few years ago the government had turned around years of deficits and was headed toward solvency. In 2001 the nonpartisan U.S. Congressional Budget Office projected that by 2001 the federal government would amass a surplus of $5.6 trillion.

Then came the war in Iraq, hurricane relief, tax cuts and other spending changes that turned the projected surpluses into record deficits.

Norwood said that one of the challenges to dealing with federal spending is that many Americans don't recognize the difference between the widely-reported deficit and the debt.

The national debt is the total amount of money the government owes.

The deficit is the amount of spending that exceeds revenue. It is measured annually.

Even though the deficit has declined slightly this year, the overall debt continues to mushroom.

The U.S. is spending as much just to pay interest on the debt -- $105 billion per year -- as it totally spends on Medicaid, which provides health-care payments for poor and uninsured Americans.

To combat rising expenditures, two simple remedies are often discussed: cut costs or raise taxes.

Herb Levine, president of the Venice Taxpayer's League is floored by the state of the nation's finances, especially when compared with a few years ago, when the country was in the black, not the red.

But he isn't surprised at the lack of public outcry, especially in Venice, which is home to a large population of retirees.

"It's very difficult to get them interested. I think they should be because it's a very important thing," Levine said. "It scares the devil out of me, you build the deficit high enough and we'll pay income tax forever." Until the federal government can curb spending or create a new stream of revenue, Norwood predicts that the nation may be heading for some difficult times.

"I don't see how they can just cut expenditures without hurting a lot of people," she said.

But for now, most Americans are focused on their own debt.

The average credit card debt for an American family has soared to $8,000, and 43 percent of Americans now spend more per year than they make.

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