Order Code RL30520
CRS Report for Congress
Received through the CRS Web
The National Debt: Who Bears Its Burden?
April 7, 2000
Gail E. Makinen
Specialist in Economic Policy
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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ABSTRACT
The burden of a national debt and who bears that burden is a matter of Congressional
concern since the gross national debt of the United States stands at some $5.5 trillion
dollars. The consensus view among economists is that the burden of this debt comes
from the federal budget deficits and that the burden is largely borne by future
generations. It arises because budget deficits tend to “crowd out” or displace private
sector spending that is sensitive to interest rates and this tends to be spending on
capital goods. As a result, future generations inherit a smaller private capital stock
(or one that is American owned) which translates into a lower level of income. Thus,
future generations of Americans tend to bear the major part of the burden. In a era
of budget surpluses, the process is reversed. Budget surpluses “crowd in” interest-
sensitive private sector spending meaning that future generations inherit a larger
privately owned capital stock and a higher level of income. If the budget surplus is
used to reduce the national debt, future generations tend to gain. Alternatively, if the
surplus is used for cutting taxes, a large share of the gain accrues to the current
generation. This report will be updated as events warrant.

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The National Debt: Who Bears Its Burden?
Summary
The United States has been free of a national debt for only two years, 1834 and
1835. We began our existence as a country in 1790 with a debt of $75 million. It has
risen to $5.6 trillion in 1999. It rose to a high of 121.6% of gross domestic product
(GDP) at the end of World War II; declined to a post-World War II low of 32.5% of
GDP in 1982; and, then, rose to another high of 67.3% of GDP in 1996. The major
cause of debt accumulation has been war. The United States has financed the
extraordinary expenditures associated with war by borrowing rather than by raising
taxes or printing money. This pattern was broken by the large budget deficits of the
1980s and 1990s which caused the national debt to rise as a fraction of GDP.
While economists have long recognized that a national debt imposes an
inescapable burden on a nation, they have debated whether the burden is borne by the
generation who contracts the debt or is shifted forward to future generations. There
has also been some controversy over the nature of the burden.
The current consensus among economists is that the burden of the national debt
is largely shifted forward to future generations. However, the burden imposed by the
national debt does not arise from debt per se, but from government budget deficits
that gives rise to a national debt. If an economy is fully employed and the government
increases its expenditures, for example, the resultant increase in aggregate demand
will cause interest rates to rise and this will reduce or “crowd out” interest-sensitive
spending by the private sector. This type of spending is likely to be for capital
purposes (e.g., business spending for plant and equipment and household spending for
housing and durable goods including automobiles). As a result, the private capital
stock inherited by future generations is likely to be smaller and their real income or
output will likely be lower. It is the reduction in future output that constitutes the
burden of the national debt and it is a burden borne largely by future generations. It
is a burden that cannot be decreased by borrowing abroad even though foreign
borrowing could leave unchanged the size of the private capital stock.
Crucial to the consensus view (and other views) is the assumption that the
economy is fully employed. And the burden discussed must be regarded as a gross
burden in the sense that certain intangible gains must be set against it such as freedom
from tyranny and domination by a foreign power that might have occurred had the
United States lost such a contest as World War II.
Beginning in FY98, the federal government has run budget surpluses. These
surpluses have been used to reduce the national debt. If Congress continues to use
them for debt reduction, the gain to the United States will be a larger capital stock for
the future as debt reduction “crowds in” the interest sensitive spending of the private
sector. As a result, the size of the private sector capital stock in the future should be
larger and this should increase the level of income enjoyed by future generations. This
is the legacy of reducing the national debt and it is a legacy that comes from budget
surpluses.

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Contents
The Traditional View of the Burden of a National Debt . . . . . . . . . . . . . . . . . . . 2
Suppose Capital Can Flow Internationally . . . . . . . . . . . . . . . . . . . . . . . . . 4
Would Financing the Deficit by Issuing Money Eliminate the Burden? . . . . 4
Do All Budget Deficits That Increase the National Debt Impose a Burden?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Role of Interest Payments in the Traditional View . . . . . . . . . . . . . . . . 5
A National Debt and National Interest Rates . . . . . . . . . . . . . . . . . . . . . . . 6
The Retirement of the National Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Appendix A: Statistical Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Appendix B: Selective Views on the Burden of a National Debt . . . . . . . . . . . . 11
The “We Owe It To Ourselves” View . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Buchanan View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Bowen, Davis, and Kopf View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The Barro View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
List of Figures
Figure 1. Federal Debt/GDP 1940-1999 (in percentages) . . . . . . . . . . . . . . . . . . 1
List of Tables
Federal Outlays, Receipts and Deficits/Surpluses
FY1980-FY2000 and Projections through FY2004 . . . . . . . . . . . . . . . . . . 9
Statistical Appendix. Federal Debt and Interest Outlays
FY1980-FY2000 and Projections through FY2004 . . . . . . . . . . . . . . . . . 10

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The National Debt: Who Bears Its Burden?
The United States, from its beginning in 1790 to the present, has been free of a
national debt for only two years, 1834 and 1835.1 The national debt has grown from
$75.5 million in 1790 to $5.6 trillion in 1999. The history of the U.S. national debt
as a percent of gross domestic product (GDP) since 1940 is shown in figure 1.2 The
national debt reached a high of 121.6% of GDP in 1946. It than began a long decline,
reaching a low of 32.5% in 1981. The large budget deficits of the 1980s and 1990s
reversed this trend and pushed the percentage to another high of 67.3% in 1996.
Figure 1. Federal Debt/GDP 1940-1999 (in percentages)
140
120
100
80
Percent 60
40
201940194519501955196019651970197519801985199019952000
Years
Gross Debt
Debt Held by Public
Source: Office of Management and Budget
The debt used for the computations in figure 1 is the gross interest-bearing debt
of the United States.3 It is customary to divide this debt into two parts: debt held by
1 During 1834 the national debt was $37,733 and in 1835 it was $37,513. It is generally
believed that the bonds represented by these sums were lost, misplaced, or destroyed and,
thus, were not presented for payment.
2 Official data on U.S. GDP are available subsequent to 1929. Finding a consistent series on
the national debt prior to 1940 is difficult since the treatment of U.S. Agency debt is not
consistent across time. When a somewhat comparable series for gross debt for the period
1929-1939 is used, it is shown to rise from 16.6% of GDP in 1930 to 44.3% in 1934. It then
remains in the low 40% range until 1938, rising to 45.5% in 1939. However, the rise from
1930 to 1934 is due mainly to the decline in GDP during the Great Depression. During the
period 1934-38, the national debt grew at about the same rate as GDP.
3 Traditionally, the national debt of a country has consisted only of its interest-bearing debt.
Non-interest-bearing debt or currency, even though a technical liability of the government,
(continued...)

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CRS-2
the public (including the Federal Reserve) and the amount held in accounts called
federal trust funds, the principal one being for social security. The publicly held debt
is often subdivided into that portion that is domestically owned and that portion
owned by foreigners. U.S. Treasury securities have become increasingly popular
among foreigners. Over the ten-year period from the end of 1989 to the end of 1999,
the percentage owned by foreigners nearly doubled, growing from approximately 21%
to 40% of the publicly held debt.
The federal budget surpluses that began in FY98 are being used to retire the
publically held portion of the national debt. Current projections by OMB show that
between FY98 and FY00, the publicly held portion of the debt should decline by
nearly $300 billion.4
The need to finance wars has been the major reason for the growth of a national
debt. In common with other major countries, the United States has rarely financed
the surge in wartime expenditures exclusively by raising taxes. A large part of
wartime expenditures have been bond financed. During the Civil War, from mid-1861
to mid-1865, the national debt grew from about $65 million to $2.7 billion. Between
mid-1916 and mid-1919, the increased debt associated with World War I, grew from
$1.2 billion to $25.5 billion. And from mid-1941 to mid-1946, the debt associated
with World War II, rose from $49 billion to $269 billion. Thus, it has been a common
practice of American public finance to increase the national debt during wartime and
then reduce the debt, at least as a percentage of GDP, during times of peace. This
pattern was broken during the 1980s and early 1990s when the national debt grew
both absolutely and relative to GDP. Growth of the national debt has also occurred
during periods of economic contraction.
The Traditional View of the Burden of a National Debt
Is a national debt a burden on a country? If it is, what is the nature of the
burden? Who bears this burden? Questions such as these have perplexed economists
at least since the days of Adam Smith for Great Britain in his day had accumulated a
large national debt fighting the Seven Years War (the French and Indian War) and
was about to add a further considerable sum suppressing the rebellion in its American
colonies.
Curiously, mainstream macroeconomics views the burden of a national debt, not
in terms of the debt per se, but in terms of government budget deficits that are the
3 (...continued)
has been excluded from national debt calculations.
4 Because of various accounting conventions and practices used by the federal government,
it is possible for the gross debt of the United States to rise even as the publicly held portion
declines. And, indeed, OMB projections recorded in Appendix A show this happening. For
an additional discussion of this issue as well as other useful information about the national
debt, see CRS Report RS20065. Surpluses and Federal Debt by Philip Winters. Updated
periodically, and CRS Report RS20455. The Effect of Surpluses on Federal Debt by Philip
Winters. Updated periodically.

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CRS-3
cause of the debt and its growth. Thus, the burden that a national debt imposes on
a country is due to the government’s budget deficits.5
To see clearly the nature of this burden and who bears it, assume that the country
is fully employed and that capital (or saving) cannot flow internationally between
countries. Also assume that this country now engages in a war with a neighbor and
that the increased expenditures associated with the war lead to a budget deficit that
is financed by issuing bonds.
The increase in government expenditures increases aggregate demand. In a fully
employed economy, in addition to raising prices, the increase in demand will lead to
a rise in interest rates.6 The increase in interest rates is the means by which the
government obtains the additional resources to fight the war for the increase will
discourage interest-sensitive spending by the private sector. This is primarily business
spending for capital goods such as plant, equipment, and structures and spending by
households for homes, automobiles, appliances and the like. Thus, the budget deficit
“crowds out” private capital and the burden of the growing national debt represented
by the bonds issued to finance the war, is the decrease in the private capital stock of
the country. Since the private capital stock inherited by future generations will be
smaller, it implies that the level of output enjoyed by them will be lower.7 The lower
level of output is thus the ultimate burden of the debt and it is a burden that is largely
shifted forwarded to future generations.8
5 The literature on the burden of a national debt is extensive. It is selectively reviewed in
Appendix B.
6 The mechanism by which this occurs is presented in the literature in two different ways.
Often is it said that real (or inflation adjusted) interest rates rise because the government must
float additional bonds to cover the deficit. This increases the demand for funds in financial
markets which raises interest rates. In the standard or text book macroeconomic explanation,
however, the rise in real interest rates results from an increased demand for money as income
increases in response to the rise in aggregate demand. This increase in money demand, in the
presence of a fixed money supply, causes interest rates, the price of money, to rise to restore
equilibrium between demand and supply.
7 If by some magic, additional resources were made available through additional saving by the
public, the increase in government expenditures would not raise real interest rates and crowd
out private investment. This would not, however, eliminate the burden of the debt. It would
merely shift it forward to the present generation. The consumption of this generation would
be reduced by the additional saving.
8 Some of the burden will be borne by the current generation (or generation present when the
debt is contracted) for they will share part of the lower output over their remaining life as well.
Of course, this burden must be regarded as a gross burden. Some budget deficits are incurred
to increase the stock of social capital such as highways, power grids, water supplies, etc. This
capital may perform a very useful and complementary role relative to private capital. In
addition, offset against the burden may be a large immeasurable gain enjoyed by future
generations such as freedom from tyranny and domination by another country.

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CRS-4
Suppose Capital Can Flow Internationally
It might be thought that a high degree of international capital mobility could
moderate the burden of the debt because foreign saving could supplement domestic
resources such that the private capital stock need not diminish. Suppose, for example,
that as interest rates tended to rise in response to the increased expenditures, foreign
capital (or foreign saving) was attracted in sufficient volume to keep domestic interest
rates from rising.9 This would keep the domestic capital stock unchanged. Would
this mean that there was no burden from a national debt? Unfortunately, this is not
the case. While it is true that the private capital stock inherited by future generations
will remain unchanged, a portion of it will now be owned by foreigners. And the
rewards from that capital will not flow to Americans, but will have to be transferred
abroad. The effect on the level of output enjoyed by Americans (i.e., their standard
of living) will be about the same as if the private capital stock was, in fact, diminished.
It will be lower.
Thus, having foreigners supply some or all of the resources for the war effort,
as in this example, will not reduce the burden of the debt. Future generations will still
have a lower level of income available to them.
Would Financing the Deficit by Issuing Money Eliminate the
Burden?
In the preceding discussion, the budget deficit was financed by issuing interest-
bearing debt or bonds. The government, however, has available another means for
financing its budget deficit. Rather than borrowing the wherewithal it could simply
print money (currency) and pay its bills.10 Might not this method of finance reduce
or eliminate the burden the national debt places on future generations? While the
simple answer is basically yes, the explanation is more complicated.
Financing a budget deficit in a fully employed economy by issuing money is
inflationary. And inflation is a form of taxation. It is tax on the existing stock of
money held by the public in the sense that it reduces the purchasing power of that
money. It is by reducing the wealth and purchasing power of the private sector that
inflation enables the government to obtain the additional resources to finance the war.
Inflation (taxation) thus crowds out private spending, some of which may be spending
on capital goods. The majority of that spending, however, is likely to be on current
consumption. Because it is, the burden of these additional government expenditures,
used in the example above, are almost exclusively borne by the current generation.
9 It should be recalled that foreign capital or saving comes to a country in the form of a trade
deficit. It is the trade deficit or excess of imports over exports, that allows a country to use
more goods and services than it produces. It is this excess that makes it possible, in this
example, to use resources for war and, at the same time, keep the capital stock from falling.
10 This was the principal means used by the Continental Congress to finance the American
Revolution. The Confederacy used this means heavily in the American Civil War. It was
used to a lesser degree by the Union government.

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CRS-5
The private capital stock inherited by future generations is unlikely to be diminished
and, hence, they will not suffer much of a decrease in their standard of living. Thus,
financing a budget deficit by substituting non-interest-bearing debt (money) for
interest-bearing debt (bonds) does not eliminate the burden of the debt; it largely shifts
the main burden from future generations to the present generation.11
Do All Budget Deficits That Increase the National Debt Impose a
Burden?
The preceding analysis is framed in terms of a fully employed economy that
experiences an increase in aggregate demand due to an increase in government
expenditures. This increase in demand requires an increase in real interest rates to
decrease or crowd out private sector spending. Yet, there are circumstances under
which a government budget deficit can arise or increase with little or no crowding out.
Suppose, for example, that the United States economy is in a recession and either
expenditures are increased or taxes cut in an effort to “jump start” an expansion. It
is possible in these circumstances for a budget deficit to grow without increasing
interest rates. The reason being that the increase in income generated by the increase
in demand generates additional saving for financing the deficit. The additional
resources represented by the saving make it possible to maintain an undiminished
private capital stock in the face of a rising budget deficit.12 13
The Role of Interest Payments in the Traditional View
The accumulation of a national debt means that the government budget will
contain as an expenditure item the interest payable on that debt. Does this impose a
burden on future generations whose taxes will be used for debt service? In the
traditional view, the answer depends on whether the debt is internally or externally
held. For an internally held debt, the payment of interest is an income transfer from
taxpayer to bond holder. In the simple case, if they are the same person, they are left
11 Another way of expressing what is occurring is to say that as inflation erodes the real value
of the public’s money holdings, it must refrain from using income for consumption in an effort
to restore it’s real money balances. This reduced level of consumption is then the burden of
the debt and it is a burden borne by the current generation.
12 Similarly, a budget deficit that rises as an economy goes into a downturn is unlikely to
“crowd out” private investment since it will not force up interest rates. The most that can be
said is that the deficit may keep interest rates from falling as much as they would otherwise.
In that sense, the deficit reduces the hypothetical capital stock available to future generations.
13 This part of the traditional view on debt burden seems to be incomplete or based on the
implicit assumption that a national debt accumulated in periods when the economy is
operating at less than full employment is retired during periods when the economy is operating
at full employment. If this is not the case, and the country faces a budget deficit even at full
employment, it is faced with the prospect of an ever-growing national debt. A case can be
made that this may be an unsustainable fiscal regime over the longer run.

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CRS-6
neither poorer nor richer. If they are not the same person, then while the taxpayer is
left with less income, the bond owner has a larger income. As a group, however, they
are neither richer nor poorer by the payment of interest. The payment of interest is
not an additional burden of an internally held debt. That burden, as noted above, is
the lower level of output (income) enjoyed by future generations who inherit a
reduced private capital stock.
When the national debt is externally held, the payment of interest abroad is a
transfer of income from Americans to foreigners. This is not a separate burden from
the national debt, however. As noted above, when a national debt is sold abroad, the
private capital stock passed on to future generations need not be diminished. But a
portion of that capital stock will be foreign owned and a portion of the income
generated by that capital will accrue to foreigners. This is the interest or, more
properly, debt service paid to them, and it reduces the level of income that accrues to
Americans. Thus, the payment of interest to foreigners is how the burden of an
externally held national debt is shifted forward to future generations of Americans.
A National Debt and National Interest Rates
It might be thought that a large national debt would have an effect on market
interest rates since if the debt is short term, the government must be in financial
markets more or less continuously as the debt rolls over frequently. Such is not the
case. The rate of interest that prevails in a country over time is determined by saving
and investment and these are what economists call flows. The national debt is what
they call a stock. And it is the flows that govern the real rate of interest. The
refinancing of the national debt should not alter the flows. Essentially, refinancing
involves replacing maturing securities with ones that come due in the future. Since
this makes no new net claim on the nation’s saving, it should have no effect on
interest rates. If this were not the case, we should observe real national interest rates
fluctuating with the size of a nation’s national debt. This pattern is not to be found
consistently in the data.
There are historical examples in which countries have had difficulties in rolling
over their maturing interest-bearing debts. Often these episodes have been attributed
to a lack of confidence in the governments in question. When these episodes have
occurred, they have often resulted in the monetization of the maturing debt with the
result being serious inflation and rising market interest rates as the market rates come
to embody expectations of inflation.
The Retirement of the National Debt
The fiscal position of the federal government has moved from substantial budget
deficits to small and growing surpluses. Beginning in FY98, these surpluses have
been used to retire the national debt. In fact, at the end of 1999, debt held by the
public was some $138 billion below its 1997 peak. The prospects of a continuing and
growing series of surpluses over the coming fiscal years are promising. If current
projections made by CBO hold, the United States faces the prospect that the federal

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CRS-7
debt held by the public that is available for redemption could be retired by 2009.14
What are the effects of this retirement on the U.S. economy?
In the traditional model, the effect on the economy from retiring an internally
held debt is just the reverse of what would happen if the national debt were increased.
The budget surpluses augment the national pool of saving, a pool contributed to by
the business and household sectors. An increase in the fraction of GDP that is saved
leads to lower interest rates. This encourages (or “crowds in”) interest-sensitive
spending. From the previous discussion, this is business and household spending on
capital goods. Thus, the budget surpluses increase the capital stock of the country
and, overtime, this raises the level of real income and the material well-being of
Americans. This, then, is the benefit that comes from reducing the national debt. It
is a benefit that comes from budget surpluses and it largely benefits future
generations.15
In a broader framework in which the U.S. economy is linked to foreign
economies through trade and capital flows, the interaction of budget surpluses,
retirement of the national debt, and its effect on the U.S. economy, is more complex.
Retiring debt that is foreign owned relieves the U.S. from having to pay interest to
foreigners. This raises the fraction of U.S. GDP that is available to Americans and
this benefits the current generation as well as those alive in the future. In addition,
since the higher saving rate leads to lower interest rates in the United States, some of
that additional saving is likely to flow abroad augmenting the capital stock of foreign
countries. This, in turn, increases the claims of Americans on foreign output
enhancing their material well-being about the same as would have occurred if those
resources had been used to augment the domestic capital stock.16
Summary
The current consensus view among economists is that the source of the burden
associated with a national debt is the government budget deficit that gives rise to the
14 Not all the publicly held debt can necessarily be redeemed by 2009 since some portion
consists of 30-year bonds that are not slated to mature until after 2010 and that cannot be
called by the Treasury. The public may not surrender all of these securities even at very high
prices.
15 It was noted above that in the traditional view, the interest paid on an internally held debt
is regarded as an income transfer and not as a burden. When an internally held debt is retired,
the interest expenses of the government fall. If the taxes used to pay these expanses is not
reduced through a tax cut, but is used instead to purchase goods and services, a burden is
placed on current taxpayers. Thus, a case can be made that some of the decline in the interest
expenses in the federal budget from debt retirement should be matched by a tax cut. This
argument does not apply to the portion of the interest expenses that are used to service the
foreign held component of the national debt.
16 For an additional discussion of the effects of budget surpluses and the implications of
alternative uses for them, see CRS Report 98-346E. Budget Surpluses: Economic and
Budget Effects of Using Them for Debt Repayment, Tax Cuts or Spending by William A.
Cox. March 17,1999.

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CRS-8
debt. In a fully employed economy, the deficit “crowds out” private sector spending,
especially spending on capital goods. Thus, a smaller private capital stock and a
lower level of output are passed along to future generations and it is this lower level
of output that is the ultimate burden of the national debt. And, it is a burden that is
largely shifted forwarded to future generations. Thus, according to the consensus
view, the burden of a national debt is borne by future generations.
Should the debt be sold abroad, the burden is still the same since a portion of the
output from the unchanged size of the private capital stock will accrue to foreigners.
When the national debt is retired through budget surpluses, the effect on the
economy is the reverse of debt increases. Future generations acquire a larger capital
stock (or a larger American owned capital stock) and a higher level of output (or
increased material well-being).

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CRS-9
Appendix A: Statistical Appendix
Federal Outlays, Receipts and Deficits/Surpluses
FY1980-FY2000 and Projections through FY2004
Fiscal Year
Outlays
Receipts
Deficit or Surplus
% of
% of
$ Billions
$ Billions
% of GDP
$ Billions
GDP
GDP
2004 (proj.)
2,041.1
17.7
2236.1
19.4
195.8
1.7
2003 (proj.)
1,962.9
17.9
2,147.5
19.6
184.6
1.7
2002 (proj.)
1,895.3
18.0
2,081.2
19.8
185.9
1.8
2001 (proj.)
1,835.0
18.3
2,019.8
20.1
184.0
1.8
2000 (proj.)
1,789.6
18.7
1,956.3
20.4
166.7
1.7
1999
1,703.0
18.7
1827.5
20.4
124.4
1.4
1998
1,652.6
19.1
1,721.8
19.9
69.2
0.8
1997
1,601.3
19.6
1,579.3
19.3
-22.0
-0.3
1996
1,560.6
20.3
1,453.1
18.9
-107.5
-1.4
1995
1,515.8
20.7
1,351.8
18.5
-164.0
-2.2
1994
1,461.9
21.0
1,258.6
18.1
-203.3
-2.9
1993
1,409.5
21.5
1,154.4
17.6
-255.1
-3.9
1992
1,381.7
22.2
1,091.3
17.5
-290.4
-4.7
1991
1,324.4
22.3
1,055.0
17.8
-269.4
-4.5
1990
1,253.2
21.8
1,032.0
18.0
-221.2
-3.9
1989
1,143.7
21.2
991.2
18.3
-152.5
-2.8
1988
1,064.5
21.2
909.3
18.1
-155.2
-3.1
1987
1,004.1
21.6
854.4
18.4
-149.8
-3.2
1986
990.5
22.5
769.2
17.5
-221.2
-5.0
1985
946.4
22.9
734.1
17.7
-212.3
-5.1
1984
851.9
22.1
666.5
17.3
-185.4
-4.8
1983
808.4
23.5
600.6
17.4
-207.8
-6.0
1982
745.8
23.1
617.8
19.1
-128.0
-4.0
1981
678.2
22.2
599.3
19.6
-79.0
-2.6
1980
590.9
21.6
517.1
18.9
-73.8
-2.7
Sources: For historical data see Office of Management and Budget, Budget of the United States
Government: Fiscal Year 2001— Historical Tables, Washington, Feb. 2000, tables 1.1 and 1.2.
Note: Projections do not take account of legislation or of economic developments since mid-1999.

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Statistical Appendix. Federal Debt and Interest Outlays
FY1980-FY2000 and Projections through FY2004
Fiscal Year
Federal Debt
Net Interest Outlays
Gross Debt
Debt Held by the Public
% of
$
% of Bud-
% of
$ Billions
% of GDP
$ Billions
GDP
Billions
get Outlays
GDP
2004 (proj.)
6,033.6
52.5
2,780.7
24.2
177.5
8.7
1.5
2003 (proj.)
5,946.8
54.1
2,963.2
27.0
189.3
9.6
1.7
2002 (proj)
5,855.0
55.7
3,133.7
29.8
198.6
10.5
1.9
2001 (proj.)
5,769.0
57.5
3,305.0
32.9
208.3
11.4
2.1
2000 (proj.)
5,686.3
59.4
3,475.9
36.3
220.3
12.3
2.3
1999
5,606.5
61.5
3,632.9
39.9
229.7
13.5
2.5
1998
5,478.7
63.4
3,721.6
43.1
241.2
14.6
2.8
1997
5,369.7
65.6
3,772.8
46.1
244.0
15.2
3.1
1996
5,181.9
67.3
3,734.5
48.5
241.1
15.4
3.2
1995
4,921.0
67.2
3,604.8
49.2
232.2
15.3
3.2
1994
4,643.7
66.8
3,433.4
49.4
203.0
13.9
3.0
1993
4,351.4
66.3
3,248.8
49.5
198.8
14.1
3.1
1992
4,002.1
64.3
3,000.1
48.2
199.4
14.4
3.2
1991
3,598.5
60.7
2,689.3
45.4
194.5
14.7
3.3
1990
3,206.6
55.9
2,411.8
42.0
184.2
14.7
3.2
1989
2,868.0
53.0
2,191.0
40.5
169.3
14.8
3.2
1988
2,601.3
51.9
2,051.8
40.9
151.8
14.3
3.1
1987
2,346.1
50.4
1,889.9
40.6
138.7
13.8
3.0
1986
2,120.6
48.2
1,740.8
39.6
136.0
13.7
3.1
1985
1,817.5
43.9
1,507.4
36.4
129.5
13.7
3.2
1984
1,564.7
40.7
1,307.0
34.0
111.1
13.0
2.9
1983
1,371.7
39.9
1,137.3
33.0
89.8
11.1
2.6
1982
1,137.3
35.2
924.6
28.6
85.0
11.4
2.6
1981
994.8
32.5
789.4
25.8
68.8
10.1
2.3
1980
909.1
33.3
711.9
26.1
52.5
8.9
1.9
Sources: For historical data see Budget of the United States Government: Fiscal Year 2001—
Historical Tables, Washington, February 2000, table 7.1 and table 3.1.

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Appendix B: Selective Views on the Burden of a National
Debt
While economists have long recognized that a national debt imposes an
inescapable burden on a nation, they have argued about who bears this burden.17 In
particular, whether the burden is borne by the generation that incurred the debt or
whether it is shifted forward to a future generation or, in the language of the time,
whether it is a “burden or mortgage on our children.” This issue acquired new
urgency when the view took hold in the economics profession that mature market
economies might be incapable of generating sustained periods of more or less full
employment without a continuous government budget deficit. If this were the case,
one could expect the national debt to grow continuously. And if that debt were a
burden on future generations, it would mean that the present generation would enjoy
employment only by shifting a burden to future generations.
The “We Owe It To Ourselves” View
As a result of the concern over whether the enjoyment of full employment by the
current generation would shift a burden to the future, it became an accepted view
during the 1930s, 40s, and 50s, that an internally held national debt would impose a
burden only on the generation present when it was contracted and would impose no
burden on future generations because we “owe the debt to ourselves.” The words of
Paul Samuelson best express the view that the current generation bears the burden of
deficit finance. Drawing on wartime experience, he wrote: “To fight a war now, we
must hurl present-day munitions at the enemy; not dollar bills, and not future goods
and services.” Thus, the alternative use of these resources in the private sector
constituted the burden of the national debt and it was a burden borne by the
generation that, in this case, fought the war.
That subsequent debt service imposed no burden on future generations can be
clearly seen in the simple case where the owners of government bonds, the evidence
of the national debt, were also taxpayers. Servicing the government debt would mean
taking money from one pocket and putting it into the other. In other words, this is
a mere income transfer. It is not a burden. Since future generations would inherit
both the bonds and the tax liabilities needed to service the bonds, no burden would
be shifted to the future. In a more complex case in which the bond owners and
taxpayers were not the same people, the existence of a national debt would imply
some income redistribution from the latter to the former. However, this would not
be a burden for the society as a whole because there would be no loss of resources for
17 For a more comprehensive review of the burden of a national debt, see Public Debt &
Future Generations. Edited by James M. Ferguson. Chapel Hill: The University of North
Carolina Press (1964) and Holcombe, Randall, Jackson, John D., and Zardkoohi, Asghar.
“The National Debt Controversy.” Kyklos. 34 (1981): 186-202.

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CRS-12
the group as a whole to use.18 Thus, the burden of an internally held debt, according
to this view, is borne by the generation alive when the debt is contracted. And the
burden consists of the alternative private sector uses of the resources that are
withdrawn for use by the public sector.19
Should the national debt be owned by foreigners, this view argued that it would
constitute a burden primarily on future generations. The current generation, by
borrowing resources from abroad, would have more goods and services to consume
than it produced. It thereby gains by incurring a foreign debt. To service this debt
a portion of future national output would have to be transferred abroad thereby
reducing the income of future generations who, the argument states, would have
fewer goods and services to use than it produced. Thus, in the case of an external
debt, we would not “owe it to ourselves” but to foreigners. And this was the
important distinction as far as who bears the burden was concerned.
The Buchanan View
Prof. James Buchanan, a Nobel Prize winner in the 1980s, attacked the then
orthodox view of burden of the debt in his popular text book on public finance first
published in 1958.20 Buchanan’s argument is that the burden of an internally held
national debt is shifted forwarded to future generations. It is not borne by the
generation who contracted the debt. His argument is that when individuals buy
government interest-bearing debt, they are making a voluntary decision to give up the
current use of resources for a larger future income (larger by the amount of interest
they receive on their now larger asset holdings). Since this is a voluntary decision, no
burden is imposed on the purchaser (i.e., the generation present when the debt is
contracted). In fact, since the purchase would not have been made had a superior
alternative been available, the purchaser is actually better off than had an alternative
use been made of that income. However, subsequent generations of taxpayers must
surrender to the bond holders the wherewithal for debt service. And this necessity is
forced on them. In this sense, it is the future generations who will bear the burden of
18 Notice that this argument neglects the fact that the budget deficit that gave rise to the debt
could have crowded out private investment thereby reducing the capital stock inherited by
future generations and the lower level of income that this reduction implies. It may well be
that this view was substantially influenced by economic conditions during the depressed 1930s
when budget deficits were unlikely to have crowded out private investment. It should also be
noted that this and other arguments about the burden of a national debt abstracted from the
possibility that the taxes to service the debt may have far reaching consequences for the
incentives to work, save, invest, and take risks, all of which are important in market
economies and that affect the long run level of output.
19 This view of burden seems to imply that the resources withdrawn for use by the government
comes at the expense of private sector consumption. For if private sector investment were
curtailed, then some of the burden will be shifted to the future as suggested by the crowding
out view discussed above. It should be noted that this view of burden was formulated before
economists had developed growth models. Once growth models were developed, they forced
economists to think differently about debt burden.
20 Public Principles of Public Debt. Homewood, IL: Richard D. Irwin (1958).

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an internally held debt and the burden is the taxes they must pay for debt service. This
is not a voluntary decision, but one forced on them by the decisions of an earlier
generation. While Buchanan’s view was subject to criticism by some economists, he
was soon to get major support from others.21
The Bowen, Davis, and Kopf View
Acknowledging that Buchanan’s view had stimulated their collective thinking,
Professors Bowen, Davis, and Kopf (hereafter BDK) came up with an argument for
why an internally held debt imposes a burden on future generations.22 BDK define
burden in terms of the lifetime consumption of a generation (as opposed to the
resources that must be given up now to, let us say, fight a war). The generation
whose lifetime consumption is reduced is, according to BDK, the generation burdened
by a national debt. With this in mind, they argue that the generation that contracts the
national debt need not be burdened by it so long as it does not pay the debt off. This
is so, because while that generation must decrease its consumption to buy the debt
(even if they are forced to do so), it can always sell it to the next generation before
its members die and enjoy the added consumption it had to forego when it purchased
the debt. This process can go on indefinitely until the debt is retired.23 The
generation that retires the debt, however, has no additional consumption to offset the
consumption it gave up when it purchased the debt from the generation before it.
Thus, BDK share in common with Buchanan a belief that the national debt is a
21 Prof. James Tobin was an important critic of Buchanan. He was concerned with
Buchanan’s view of burden. If a person voluntarily does something, it is no burden to that
person, according to Buchanan. This suggests to Tobin that a person who voluntarily
purchases a good on which an excise tax is levied incurs no tax burden. Yet, there is a whole
literature in public finance on the “incidence and effects” of taxes that Buchanan’s notion of
burden seems to throws away. Perhaps, in reference to the national debt, it would be more
appropriate and less troublesome to ask “who bears the incidence of the debt” rather than the
burden of the debt.
22 “The Public Debt: A Burden on Future Generations?” American Economic Review, 50
(September 1960): 701-06 and “The Distribution of the Debt Burden: A Reply.” American
Economic Review 51 (March 1961): 141-43.
23 There is, however, the question of the time distribution of that consumption. Consumption
is given up early in the life of the current generation to be recouped at a later period when the
debt is sold to the next generation. But consumption at a later date is unlikely to be of equal
value to the consumption given up when the bonds are purchased. Because it is not,
individuals must be rewarded for postponing consumption until later. And this is the role of
interest in the BDK model. It is the reward paid to bond holders for postponing current
consumption until later. The present discounted value of those interest payments and the
principal, should be equal in value to the consumption that could be enjoyed today if the bonds
were not purchased. From that perspective, the lifetime consumption of the current generation
is not reduced. However, paying interest involves having to pay taxes, and taxes reduce the
lifetime ability of any generations to consume. Thus, on balance, debt financing reduces the
net lifetime consumption of every generation which means that part of the burden of debt is
spread across all generations including the generation present when the debt was contracted.

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“burden on our children.” It is they who must ultimately retire the debt and, with
retirement, undergo a permanent reduction in their consumption.24
The Barro View
The most recent, innovative, and serious challenge to the conventional view of
the burden of a national debt comes from Prof. Robert Barro. As noted in the body
of this report, crowding out would not occur and the burden would not be shifted
forward to future generations if the current generation would only save an additional
amount of resources to match the increased demand for resources represented by the
additional government expenditures that are financed by issuing interest-bearing debt.
Barro has an ingenious argument for why such behavior could be forthcoming.
Suppose, he says, that individuals live forever and that they have as a goal the
maximization of consumption over time. To attain this goal, they have to be
concerned about the private capital stock for it is an important determinate of income
and income governs consumption. As in the standard macroeconomic model, the
saving behavior of the public governs the resources available for capital goods
purposes. How much of their income they save, and, hence, private investment, will
depend on how they value current as opposed to future consumption.
If individuals live forever, Barro argues, they will be indifferent between the
government using taxes or the sale of bonds to finance, let us say, additional
expenditures related to war. If the additional expenditures are financed through an
additional tax, the public, in an effort to keep the private capital stock (the key to its
goal of maximizing consumption) unchanged, will reduce current consumption by the
amount of the tax. As a result, the burden of the war-related expenditures will be felt
when they are incurred.25
Alternatively, the government could have chosen to finance the additional
expenditures through the sale of bonds or interest-bearing debt. Had this option been
chosen, the public would have behaved in the same way. In order to keep the private
capital stock at the optimum level over time, it would have to reduce its consumption
and save a higher fraction of its income. This additional saving would then be used
to buy the bonds and provide the resources to the government for the war.
It might be thought that the necessity to pay interest on the bonds over time
(and, perhaps, provide for their redemption) would, by requiring additional taxes, shift
a burden forward. This is not the case, for the taxpayer and the bondholder are the
same people. Money is simply taken from one pocket as taxes and put back into the
other pocket as interest. This is no additional burden. To the extent that the taxpayer
24 BDK were careful to remind the reader that there is nothing inherently undesirable with debt
financing of government. For example, if such government spending was for capital goods
that benefitted future generations, a case could be made that they should be burdened by their
cost (or a sort of pay-as-you-use system).
25 If individuals do not live forever, and it will be shown later that this isn’t crucial to Barro’s
argument, it could be said that the burden of the war expenditures were felt by the generation
alive when they were incurred.

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and bondholder are different people, some income redistribution could be expected.
Thus, if individuals live forever, they would be indifferent between financing these
added expenditures through a tax increase or the sale of bonds.26 And, the burden of
the debt is felt in terms of reduced consumption. It is a burden borne at the time the
additional expenditures are made.
Barro must deal with the fact that individuals do not live forever. To address
this problem, he asks: are there circumstances under which they would behave as if
they had eternal life? He argues that this behavior would be forthcoming if
individuals treat the well being of their children on a par with their own. Since their
children would behave similarly, and so on, individuals in the current generation
would behave as if they lived forever. If individuals behaved in the way Barro argues,
the conventional argument about the burden of a national debt, is likely to be wrong.
Debt financed government expenditures will not crowd out the private capital stock
because it will be offset by an equal amount of private sector saving.27 This behavior
is designed to ensure that future generations do not inherit a smaller private capital
stock and, hence, a lower level of output and suboptimal consumption. Thus, the
burden of the national debt is not shifted to them as the convention view argues.28
The attack on Barro’s view has been both theoretical and empirical. On the
theoretical side, it is argued that individuals for a number of reasons may be reluctant
to equate the well-being of their children on a par with their own (this presumes that
the individuals under scrutiny have children).29 On the empirical side, the saving
behavior of the private sector does not correlated well with the saving/dis-saving
behavior of the public sector. The Barro view implies that this behavior should be
highly correlated: on a one-to-one basis. Only in this way is the private capital stock
passed on to future generations rendered immune to the public finances of
government.
26 This taxpayer indifference between bond or tax financed government expenditures has been
attributed to a founder of modern political economy, David Ricardo. It has been shown that
this so-called Ricardian Equivalence is not the true view of Ricardo. On the contrary, Ricardo
argued that the taxpayers would not be indifferent, but would generally prefer to finance such
expenditures by selling bonds rather than paying additional taxes.
27 Technically speaking, the current generation need not save a precisely offsetting sum from
current income. This is because the current generation can always leave a bequest to the next
generation.
28 Barro further argues that if the current generation wanted to ensure that their children
inherited a smaller private capital stock, they have a simple means to do so: they could save
a smaller portion of their disposable income. They don’t need a government budget deficit for
that purpose. Thus, in the presence of a budget deficit, they are, according to Barro, likely
to offset it with a higher saving rate. The opposite is supposed to occur when it is faced with
a budget surplus.
29 For a more complete theoretical critique of Barro, see Tobin, James. Asset Accumulation
and Economic Activity (Chapter III). Chicago: University of Chicago Press (1980): 49-96.

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Summary
The purpose of this appendix has been to provide a flavor of the various
arguments advanced by economists about the burden of the public debt, the nature of
that burden, and who bears that burden. It has basically been a debate about who
bears the burden. According to the various views, the burden, depending on how it
is defined, can be borne by the generation that contracted the debt or shifted forward
to future generations. The arguments summarized in this appendix are all concerned
with an internally held debt. It is recognized that an externally held debt must be
treated differently.

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