Meaningfully Defining Deficits and Debt

The effects of an overhanging government debt depend crucially on the tax structure by which future debt service is expected to be financed. If tax rates required to service the debt in addition to other needed government outlays become so high as to seriously distort activity, or if they approach the point of maximum yield or are made such a political issue as to threaten the downfall of any government that seeks to increase them, deficits may indeed be turned into steps toward the brink of a slippery slope. At present, in the US, the chief dangers seem to come from political anti-tax rhetoric on the one hand and loophole-mongering on the other that threaten the ability of the tax structure to deal with debt service. Even so, the US seems to be a long way from the brink, and there remains plenty of room for a Keynesian stimulus to operate. However, there has been so much alarmist decrying of the growth of debt and deficits and advocacy of the virtues of budget-balancing and encouraging individuals to save more that turning things around on any but the slowest timetable is likely to prove an arduous task.