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The US government's deficit, explained

America's debt is its biggest national security challenge, according to top Pentagon brass. Here's why.

Us stealth super hornet strike fighter jetEnlarge
An F-18 Super Hornet strike fighter plane takes off from the deck of USS George Washington in November 2010. The Defense Department's budget will be debated as Congress and the Obama administration attempt to address the federal deficit, deemed one of America's greatest national security threats by Pentagon brass. (Seo Dong-Il)

BOSTON — Money is on everyone’s mind these days in Washington.

Congress is embarking on a high-octane debate over the government’s profligate habits. It promises to be a legislative brawl that could make the ObamaCare negotiations seem civilized.

The stakes are high, as President Barack Obama noted in his recent speech. This week, Standard and Poor’s threatened to downgrade the government’s credit rating if the U.S. doesn’t get its budget in order. If that happened, the U.S. would quickly face even higher interest payments on our debt, and American power would be severely eroded. Meanwhile, a deeply divided Congress must agree to raise the country’s debt ceiling by May 16. Not doing so would cause us to default on our loans, shattering one of America's chief economic assets: reliability.

Washington’s fiscal health is by no means a matter for the bean counters. America’s chief military officer, Adm. Mike Mullen, has famously said that the single biggest threat to U.S. national security is not Al Qaeda, China, Iran or North Korea. It’s the national debt.

To put the debate in perspective, we dove into the numbers to get a better sense of how big the problem is, and how difficult it will be to solve. Here’s what you need to know. (Unless otherwise noted, we’ve used numbers from Obama’s 2012 budget request, which is under consideration by Congress.)

Is the U.S. really as broke as everyone says it is? Is Mullen right that this is a security threat?

Well, yes. Without a doubt.

This year, the government will take in about $2.2 trillion and spend $3.8 trillion. For every dollar it collects, it spends $1.70.

Things are looking up somewhat, at least in theory. In 2012, according to the budget Obama submitted to Congress, the U.S. will spend about $80 billion less ($3.7 trillion). And as the economy recovers, the Treasury will take in $425 billion more ($2.6 trillion). At least, that’s what the administration expects. Obama’s budget risks getting larded with pork as it works its way through Congress. If Obama’s budget were to be signed into law, the U.S. would spend $1.42 for every dollar it collects. That’s better than 2011, but no one would call it good.

You hardly need to crunch numbers to conclude that this is unsustainable. The U.S. currently owes more than $14 trillion dollars. In 2011 we will pay $205 billion in interest — about $1,600 per household. According to Obama’s budget, by 2020, interest payments will jump by more than 400 percent, to $863 billion.

So here’s the national security question: Will the Chinese — who disagree or compete with the U.S. over ideology, territorial issues, resources and a multitude of other issues — lend us that money? And what will they demand in return?

How much money comes from taxpayers versus corporations?

Here’s a good reason to pay attention: The money largely comes out of your paycheck. In 2012, American workers will send a hefty $2.07 trillion to Washington, compared to $327 billion from corporations. (For 2011, the corporate contribution will only be about $198 billion.)

So individuals pay six times more tax than corporations.

While it’s tempting to raise more from corporations, some experts argue that this is the wrong approach, especially given the need to create more jobs. “The corporate income tax is more harmful to long-run economic growth than other taxes, which is why governments around the world, including left-wing governments, are reducing [them],” said Alan Viard, a scholar at the Republican-leaning American Enterprise Institute.

Can’t we just fix the deficit by slashing wasteful spending and cutting back on all those government departments in Washington?

Unfortunately, that won’t solve the problem, not even if we shut down every non-security, federal program.

Entirely eliminating these outlays — including money for highways, education, justice, science, cancer research, diplomacy, the environment and other government programs — would cut many jobs, harm the economy and dramatically impact our quality of life. And it would only reduce spending by about 12 percent. Put another way, instead of spending $1.42 per dollar it collects, the U.S. would be spending about $1.25, and we’d soon have the infrastructure and institutions resembling Somalia's. 

If government bureaucrats aren’t wasting it, where does all of our tax money go?