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Ask the taxgirl: Who Owns the US Federal Debt?

June 28, 2008 · 8 comments

Taxpayer asks:

Hey taxgirl,
I get that we have overspent in Congress. But who do we owe exactly? And what is the difference between the deficit and the debt? I know these aren’t really tax questions but you talk about it on your blog so I thought you might know.

Taxgirl says:

What great questions!

Yep, I definitely do talk about the deficit quite a bit on my site – that’s because tax policy (especially whether to raise or lower taxes) is often dependent upon our deficit levels.

Here’s the quick difference between deficit and debt:

1, The federal deficit is the overage of expenditures versus revenue/receipts in a fiscal year. In simple terms, if we spend more than we make, we have a deficit. If we were to spend what we took in (imagine that!), we’d have a “balanced budget”. And if we were to take in more than we spent, we’d have a surplus.

The deficit is recalculated every year based upon the shortfall or surplus each month. If we have a deficit, the Treasury borrows money to make up the slack. The Treasury does this by selling securities like T-bills, notes and savings bonds.

The deficit for the current fiscal year (as of last month) is $319.4 billion, more than twice what it was for the same period in 2007.

2, The federal debt is more or less the aggregate of all of the deficits that we amass. So if we owe $800 million one year (and it’s not repaid) and we owe $500 million in another year (and it’s not repaid), we have a debt of $1.3 billion. Make sense? And since this money represents borrowed money, we also pay interest on it.

According to the US National Debt Clock, our debt as of June 28, around 5:30 p.m. is $9,371,491,730,059.48. The National Debt Clock has calculated that the debt has increased an average of $1.33 billion (yes with a b) per day since September 28, 2007!

Yowza, that’s a lot.

If you want to see the breakdown by kind of debt and year (among other goodies) you can view the latest info from the federal Treasury Bulletin.

Now to the other part of your question: who owns the federal debt? A lot of folks have been making a great deal of noise about the fact that China owns a lot of our debt (not a good thing). That’s partly true. As of June 2007 (the last time this data was made available), 45% of the debt was held by the US Government in other capacities; 28% was held by private US citizens and an astounding 27% is held by foreigners. The British, Japanese and Chinese hold most of this segment of the debt. You can get some great perspective at The Skeptical Optimist – he has all of this info in a nice chart. You can also see a nice breakdown from the Treasury of those foreign governments that we owe money to in the form of securities.

My favorite part of the chart? The footnote that clarifies that those who have purchased the fourth most US securities are “Oil Exporters” including Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria. Huh? How did we get to the point where we owe Iraq money?? But I digress…

At any rate, I hope that this answers your question. Thanks for reading!

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl!

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{ 5 comments… read them below or add one }

1 Luca June 28, 2008 at 10:41 pm

“…China owns a lot of our debt (not a good thing)…”

Why not a good thing? That gives China another reason (besides our being their primary export market) to keep the US economy strong and healthy.

2 Kelly June 29, 2008 at 11:45 am

I disagree. There is always an incentive for a lender to keep a debtor in debt.

I would agree that China wouldn’t benefit if our economy were to tank – but they also don’t benefit if we suddenly control our own debt.

It’s like a credit card company. A credit card company doesn’t ever really want you to stop borrowing – they just want to make sure they get paid along the way. Those companies don’t benefit when consumers don’t borrow.

China isn’t lending to us for fun or altruism. It’s an investment – one that counts on the fact that we will continue to be in debt.

3 Luca June 29, 2008 at 6:48 pm

China is not in the business of lending money to other countries — especially at rock-bottom interest rates in a depreciating currency. They are in the business of driving the economic development of a nation of 1.3 billion people. A rip-roarin’ US economy is what benefits them best. It’s like car companies doing 0% financings. They lose money on the financing side, but they badly need to keep inventory moving so it’s ok.

National debt is also very different from bank debt because it comes with no leverage. They can’t dump the t-bills they own because there are no big enough buyers to make a difference. And the ensuing further drop in the dollar would devastate their economy. Remember the saying: if you have a little debt the bank owns you, but if you have a lot of debt you own the bank.

Don’t misunderstand me – I’d much rather see the US as a net creditor rather than a net debtor. However I’d rather see China criticized for their human rights track record rather than for their willingness to finance our living above our means.

4 Kyle August 11, 2009 at 8:55 pm

How does the U.S. government hold 45% of its own debt. Wouldn’t that mean that the 9.xx trillion dollars multiplied by 0.55 is the “actual” debt or is the U.S. government a different entity than the U.S.A.

5 Anti Vigilante August 10, 2010 at 2:00 am

The US govt doesn’t own 45% of the debt. They borrowed it and are sitting on it.

It’s the same old double booking that every state has. Comprehensive Annual Financial Reports.

Look up Walter Burien.

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