Our debt is already bigger than our economy.
Paul Ryan told a boisterous CPAC crowd that without action on the budget, "the debt will weigh down our country like an anchor." Ryan, the Wisconsin congressman and former Republican vice presidential candidate, rose to prominence for budget proposals that dramatically cut spending and made structural changes to Medicare to achieve more savings. This week, Ryan released the 2014 version, which follows much the same blueprint -- and makes the same dire warnings about the nation’s debt. "Our debt is already bigger than our economy," he said at CPAC on March 15, 2013. Our colleagues at PolitiFact Texas checked out a similar claim from Sen. Ted Cruz, R-Texas. Here, we’ll take a fresh look. GDP vs. which kind of debt? Ryan’s office pointed us to two sources of government figures. First, the easy one. The Bureau of Economic Analysis’ put out a press release on February 28, 2013 putting GDP at just over $15.8 trillion. The government defines the GDP -- gross domestic product -- as the market value of the goods and services produced by labor and property within the country. As for the debt, the U.S. Treasury is the go-to source. As of March 14, 2013, total outstanding public debt is $16,708,225,460,175.14. (We’ll call it $16.7 trillion for everyone’s sanity.) That’s broken down into two categories: debt held by the public and intragovernmental holdings. Here are those dollar figures: Debt held by the public: $11.9 trillion Intragovernmental holdings: $4.8 trillion To explain the difference, we’ll borrow from our PolitiFact Texas colleagues’ handiwork. Intragovernmental debt refers to money owed by agencies within government to other agencies -- basically an internal accounting issue. An example: Social Security surpluses that the government uses for other federal operations. Such money will have to be repaid, it’s presumed, but the demand is less pressing right now and it doesn’t affect credit markets. In contrast, public debt reflects money borrowed from outside sources -- giving it more of a connection to the economy, Josh Gordon, an analyst with the anti-deficit Concord Coalition, told PolitiFact Texas. "If your problem with the national debt is that you think it’s affecting the economy or interest rates or something like that, the only part of the national debt that affects the economy is the debt held by the public. That’s where the (U.S.) Treasury is borrowing money on the open market." Paul Van de Water, an economist with the liberal Center on Budget and Policy Priorities, further explained why that matters. "Debt held by the public is important because it reflects the extent to which the government goes into private credit markets to borrow. Such borrowing draws on private national saving and international saving and therefore competes with investment in the nongovernmental sector (for factories and equipment, research and development, housing, and so forth). Large increases in such borrowing can also push up interest rates and increase the future interest payments the federal government must make to foreign lenders, which reduces Americans’ income. Achieving a stable debt-to-GDP ratio is a key test of fiscal sustainability," Van de Water wrote in a memo. So, if we just consider debt held by the public -- which is what most affects the economy -- it totals about 75 percent of GDP -- not, as Ryan said, more than the size of the economy. But Ryan isn’t entirely off-base, especially since partisans tend to disagree about the importance of intragovernmental holdings. "When you dig a bit deeper, you hit a partisan debate about the portion of the debt not held by the public, most of which is held by the government in trust funds. Republicans say that the trust funds are filled with IOUs, which eventually will have to be redeemed with other funds. Democrats say that the trust funds represent binding promises that government has made to tens of millions of Americans. They’re both right," said William Galston, an expert with the Brookings Institution who was an adviser to President Bill Clinton. "What Ryan said is not untrue, although it’s not the only way of describing the truth." Our ruling Ryan claimed that "our debt is already bigger than our economy." If you count debt held by the public and intragovernmental holdings, the debt is roughly 105 percent of the economy. But counting only debt held by the public, which is what many economists say affects the wider economy and credit markets, the debt is only 75 percent of GDP. Debt held by the public is more relevant to discussions about federal spending, but it’s not the one Ryan cited. We rate his statement Half True.
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