Why The National Debt Is Hampering Hiring

Nov. 16, 2012— -- If you want evidence that our nation's debt is casting a cloud on the economy, just talk with business owners. Sageworks recently did an informal poll of accounting professionals and bankers who are in constant contact with the owners of privately held companies.

Nearly three-quarters said the national debt is making it less likely that businesses will increase hiring. A similar proportion said the debt, which stands at around $16 trillion, makes it less likely businesses will boost other investments as well.

Can you blame these people? Owning a business is itself a very risky proposition, even if overall economic conditions are stable. Owners often have their own capital and their own livelihoods at stake. They realize that, at a minimum, the debt puts our economic structure at risk. On a more practical level, they understand that the national debt is bound to result eventually in an increase in the cost of their own borrowing. Why would they want to take on additional employees, equipment and infrastructure on our current debt load? It would be like deciding to add another floor to a house that is known to be structurally unsound.

Some large, publicly traded businesses have recently banded together to argue that the national debt must be addressed. But, without a broader push by privately held companies, Congress will continue to delay action. Private businesses, which number about 27 million and account for over 54 percent of aggregate non-residential fixed investment, need clarity on how the debt will be reined in.

Our national debt is an economic cancer that grows year after year, almost independent of any particular administration. Part of the problem in tackling this disease is that it's a complicated issue full of mind-numbing jargon and mind-blowing numbers. As any physician will tell you, patient education is critical to treating diseases.

Let's start. Total government spending is estimated to be $3.56 trillion in2012. Revenues, including some tied to Social Security trust funds, may total $2.44 trillion. That leaves a budget shortfall of $1.13 trillion, or $1.19 trillion if you exclude the current surplus tied to Social Security. This kind of deficit for just one year is astounding. Therefore, spending for this year alone is nearly 50 percent over and above revenues coming in. This is akin to an established company with sales of $100 and expenses of $150.

This is where it really gets dire. Consider the alternatives. Even if you cut all "discretionary" U.S. government spending (which includes all expenditures for the military and courts, the FDA and the EPA, disability benefits for veterans and construction of roads), current revenue levels mean our national debt would still grow by 16 percent to $18.6 trillion within the decade.

This is because the "mandatory" portion of federal government spending (the part which isn't negotiated by Congress each year) is snowballing. This is spending for benefit programs defined by lawmakers such as Social Security, Medicare, Medicaid and poverty-related programs, as well as spending for civilian and military retirement plans.

The interest alone on our national debt is another major drain. Estimated at $220 billion this year, it is approximately equal to expenditures for retirement programs for military and civilian government workers, as well as disability payments to veterans.