Question

A. What are two main causes of our national debt?  

B. What are two effects of our national debt?

C. How can we address (make it better) our national debt?

Please explain each question briefly, thanks.

Answer 1

A. • The wars in Iraq and Afghanistan was a major chunk of unexpected spending which came around $1.3 trillion. These wars had to be financed through borrowings, which added up to national debt.

• The 2009 stimulus program enacted by President Obama cost $800 billion and the 2010 tax-cut compromise between Obama and the Republicans added another $400 billion to the national debt. Apart from these, another $200 billion provided for the bailout of the financial industry raised the national debt further.

B. • Over the long-run, as the debt-to-GDP ratio increases, debt holders could demand larger interest payments for they want compensation for an increasing risk, that wouldn’t be repaid.

• Because of lower demand for Treasurys, it puts downward pressure on the dollar as the dollar’s value is tied to the value of Treasury securities.

C. • Increasing income tax rates on Long-term Capital gains and Dividends would add to the Federal revenue over a long period.

• increasing Corporate taxes marginally would add up to tax revenues in the long-run thereby reducing national debt.

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