Why Deficits Are Compared to GDP Instead of Government Revenue

It’s always interesting that our Federal debt and annual deficit is always compared to GDP. It really helps make the numbers look better and paint a rosy picture for spendthrift politicians. However, it’s a very inaccurate picture of a debt situation. It would be like an individual looking at their individual spending compared to the revenue of the company they work for.

The real numbers to be looking at are the actual revenues generated by the United States government. For Fiscal Year 2010, the Federal government collected ONLY $2.16 trillion. At the time of this blog, we had $14.29 trillion in debt. What that means that *IF* the Federal government did nothing but pay down the national debt (and we don’t compound interest), it would take 6.6 years to pay it off. Of course, that is also assuming that the Federal Government will continue to receive $2.16 trillion in revenue each year. Of course, interest does compound, the Federal Government can’t spend 100% of all revenue on paying down the debt, and the Federal Government wouldn’t continue to received $2.16 trillion/year if it paid just the national debt over the next 6.6 years.

What this all really means is that politicians are blowing smoke when they talk about reducing the deficit and national debt by marginal numbers. Costs of major social programs are just going to continue to skyrocket (just read my blog about Diminishing Healthcare Returns). With a quadruple digit increase in the costs of healthcare over the last 40 years, does anyone really expect Obamacare to curb that? Even if it does reduce the rise in healthcare costs (which it won’t) by half, it still means that we’ll be paying 700% more for healthcare in 40 years than we pay today.

This is precisely why GDP is used in comparison to deficits. It is the perfect smoke and mirrors for politicians to use to pull the wool over our eyes to the true state of our financial affairs. It helps make the numbers of programs like Obamacare look bearable. The reality is that we aren’t going to pay back this debt, and the costs of so many social programs will exceed the Federal Government’s income. Since we don’t care to look at the Federal Government’s income, we won’t even see it coming. We haven’t for the last several decades!

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