On June 9, the United States quietly reached an inauspicious milestone: our nation’s total federal debt surpassed $26 trillion for the first time. Given the dual crises of coronavirus and civil unrest that dominate national headlines, it’s not surprising this transpired with little notice. Still, America’s high and rising debt deserves our collective attention because it threatens our economic future.
The relative obscurity of this event can be attributed, at least in part, to the myriad of ways lawmakers and federal agencies discuss and describe our national indebtedness. For example, the chief debt metric employed by the Congressional Budget Office is “debt held by the public,” but this is very different from Congress’ emphasis and oversight of “debt subject to limit.” Good government groups monitor “gross federal debt” because it includes “intragovernmental” debt, and despite the name, “total public debt” is not the same as “debt held by the public.” For the uninitiated budgeteer, this fiscal word salad can be very confusing.
To help, The Concord Coalition has compiled a brief glossary of commonly cited measures of debt:
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Debt held by the public – The portion of outstanding Treasury-issued debt held by entities outside the federal government. Examples of outside entities include individuals, pension funds, mutual funds, insurance companies, state and local governments, foreign governments, the Federal Reserve, and deposit funds such as the Federal Thrift Savings Plan. Debt held by the public includes all marketable securities and certain non-tradable securities in public hands, such as savings bonds. It is measured and reported because it is an obligation that taxpayers will have to repay. As of June 15, debt held by the public totaled $20.2 trillion and rose at a rate of $1 trillion per month over the previous two months.
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Intragovernmental debt – Oddly, the federal government is capable of issuing debt to itself. Intragovernmental debt is the sum of Treasury-issued securities held by trust funds, revolving funds, and special funds that underpin federal programs such as Social Security, Medicare, and the Civil Service Retirement System. It also includes securities issued by the Federal Financing Bank. These programs have their own sources of revenues and any amount that isn’t needed to pay benefits immediately are invested in special Treasury securities. Unlike debt held by the public, intragovernmental debt is not tradeable on the open market and the programs that hold this debt can present their bonds for redemption with the Treasury at any time, upon demand.
Because it isn’t tradeable, intragovernmental debt has no intrinsic economic value – it is merely a “first claim” on general revenue. It is measured and reported because it reflects an obligation of the federal government to future beneficiaries. As of June 15, intragovernmental debt totaled $5.9 trillion but it is expected to decline over the next decade as Social Security and Medicare trust funds redeem their bonds to pay promised benefits. At that time, the Treasury department will need to find a way to convert those bonds into cash.
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Gross federal debt (total public debt outstanding) – The total amount of federal government debt issued by the Department of Treasury. It is the sum of debt held by the public and intragovernmental debt. As of June 15, gross federal debt totaled $26.1 trillion.
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Debt subject to (statutory) limit – The total of all Treasury-issued debt except securities issued by the Federal Financing Bank and a small amount of agency-issued debt (e.g., Tennessee Valley Authority and US Postal Service). The debt limit is a statutory constraint, determined by Congress, on the amount of money that Treasury may borrow. The debt limit is currently suspended and scheduled for reinstatement on August 1, 2021, at a level precisely accommodating federal borrowing at that point. As of June 15, the total amount of debt subject to limit was $26.1 trillion.
A note of caution: the amount of debt owed, presented in isolation, does not indicate affordability. A nation’s income and wealth provide important context. For this reason, debt is often measured relative to a nation’s income. Gross Domestic Product (GDP) is the value of all goods and services produced within the U.S. and is a good proxy. At the end of the first quarter of 2020, debt held by the public relative to GDP was 80 percent, and gross federal debt as a percent of GDP was 108 percent.
