A 35-year-old mother of two, Kelly lost her job at a large investment firm in the winter of 2008 and drew unemployment benefits for 99 weeks. When these ran out, she and her husband, who is a city employee, turned to the local housing authority, a federally subsidized social program aimed at helping families with children keep their homes. 

Unable to continue making the $1,200 monthly mortgage payments, Kelly and her husband secured assistance for the next five months. In addition, her children take advantage of a free lunch program at a local high school.

Steve, a 42-year-old businessman, is in a different situation. While the recession has severely impacted him and his business, he does not qualify for government help—even though his revenues have declined by 40 percent or more since 2007. Steve is in favor of helping people in need, but says many abuse the system. He firmly opposes extending unemployment benefits, which he feels give some an excuse not to return to work.

Is it wrong for Kelly to maintain her lifestyle by taking advantage of programs the government offers? Should Steve be entitled to the same programs regardless of his financial position?

While fictional, these two accounts are close to reality for many Americans. The current economic climate fuels widespread debate over how the government should administer financial aid to individuals.

Regardless, when one steps back to look at the “big picture,” the stark reality of the nation’s problems becomes painfully clear: America is in debt, still spending, and in big trouble. Worse, there is a staggering amount of debt that most overlook.

Addicted to Spending?

In 2009, the federal government set a deficit record of $1.4 trillion. For 2010, Washington plans to spend $3.5 trillion. The White House is predicting an additional $9 trillion over the next 10 years, meaning a total of more than $20 trillion in debt by 2020.

Critics from the political party in the minority are quick to point out that this is a Democratic president doing all the spending. But under the previous president, a Republican, there were also substantial deficits and the federal budget grew by a record $700 billion from 2001 to 2008.

The result of years of overspending is a federal debt of $13.6 trillion. But this number hides the truth.

Not included in the official debt are totals from “off-balance sheet liabilities.” This means the amount of debt from government-funded programs, such as Medicaid and federal employee pension programs, is not included when the debt is tallied.

Using this approach, analysts reach the $13.6 trillion figure. But again, this is only a small portion of the actual national debt. Amazingly, this is the same accounting method Enron Corporation used to conceal massive debt and appear financially stable before its sudden collapse!

For an accurate picture of the federal debt, one must add up the amount spent on all unfunded programs, such as Medicare and Social Security.

These are “unfunded liabilities,” which in government terms refers to any program or expense that requires it to pay, but either does not bring in any money or enough to cover expenses. In the example of Medicare, the unfunded liability is the difference between the benefits promised to current and future recipients and what will be collected in taxes and Medicare premiums.

A National Center for Policy Analysis article reported that the combined debt of the Social Security and Medicare programs alone are seven times the size of the U.S. economy and 10 times the size of the national debt!

Using numbers from a 2009 Social Security and Medicare Trustees report, the center showed that Medicare and Social Security deficits are on course to cost more annually than the entire federal budget. As it stands, the combined deficits of both pro­grams now require about 14 percent of general income tax revenues. When baby boomers begin to retire, this number will dramatically increase.

Consider. Since the inception of these programs, Social Security has paid out $17.5 trillion and Medicare has shelled out $89.3 trillion more than revenue collected from taxpayers. Together, these two programs add a total of $106.8 trillion to the published national debt.

That is a grand total of more than $120 trillion for the federal debt. At a 5 percent rate, the annual interest payment would be more than $6 trillion!

This figure does not include federal government pension plans, which are also unfunded, as is 97 percent of the military retirement plan.

Add to this the Fannie Mae-Freddie Mac bailout. The government has given these two mortgage finance companies an unlimited financial guarantee, which is estimated to cost another $5 trillion total.

Spending for the three largest entitlement programs, Medicare, Medicaid and Social Security, has increased by 60 percent over the past several decades, according to a 2010 Congressional Budget Office report: “Together the federal outlays for those three programs accounted for an average of 46 percent of the primary spending over the past 10 years, up from 27 percent from 1975.”

If this rate of increase continues, the payout for these three programs alone will soon exceed tax revenues. Again, this leaves out pension plans.

State and Local Turmoil

Financial problems do not stop with the federal government. Nearly every state is operating under large deficits and accruing unsustainable debt. Budget problems in 46 states for the 2011 fiscal year total $121 billion, which is almost 20 percent of their combined budgets. Some estimates total over $140 billion, depending on federal assistance.

And all this is poised to continue. For the 2012 fiscal year, 39 states have already projected gaps totaling $102 billion collectively. This is expected to reach $120 billion when all states are included in projections.

The Center on Budget and Policy Priorities investigated the results from the $787 billion American Recovery and Reinvestment Act of 2009, which worked to provide aid for states in fiscal distress and limit tax increases. The report found that while states are still struggling, “…the aid is now mostly gone; only about $60 billion remains to help with 2011 fiscal problems. By 2012 only $6 billion will remain.”

California is perhaps in the worst shape. The state has begun issuing “registered warrants,” better known as IOUs or promissory notes, to “pay” its bills. In 2009, California issued $2.6 billion in IOUs for schools and bondholder payments. As of July 2010, the state issued IOUs worth over $3 billion to state vendors, health clinics, community colleges, scholarship recipients, as well as legislative and gubernatorial employees (The Sacramento Bee).

Across the nation, long-term borrowing to solve immediate problems has become the norm. States are selling off their assets for “quick cash” in an attempt to address their unfunded liabilities.

Arizona sold its legislative office building, the state supreme court building, governor’s office building, state prisons and the Arizona Schools for the Deaf and the Blind to private investors to raise $735 million. There are also over a dozen more properties being considered for the same program. Once the sales were complete, Arizona leased back the properties from investors!

Many fear these tactics are like trying to use Band-Aids to cure cancer.

“We’re in the second full year of huge budget deficits. The typical gimmicks have already been employed. Now this new one has surfaced,” Kevin McCarthy, president of the Arizona Tax Research Association told Stateline.org, which is funded by Pew Charitable Trusts. “They are masking the budget deficit and creating a one-time infusion of revenue that will go away next year. Then what will you do?”

Indiana leased its toll roads in March 2006 to a group of foreign investors for a lump sum payment of $2.8 billion. Companies from Australia and Spain bought the property because they could raise tolls and install electric collection booths to increase profits. This move was an attempt by Indiana to supplement its highway improvement program deficits. But the 75-year lease will only cover the gap for 10 years!

Pennsylvania has sold aging office buildings in Philadelphia and Pittsburgh because moving state workers to leased space was less expensive than paying for repairs. Florida also sold public buildings for similar reasons.

In Michigan, Detroit sold $250 million worth of bonds, rated at “junk” status, to investors. The city had to cover a $280 million deficit and has stated that it may need to file for bankruptcy protection.

Washington, D.C., has had to raise nearly a billion dollars. States such as Massachusetts and Connecticut, which are also struggling with shortfalls, are selling more bonds to acquire needed cash.

According to a Heritage Foundation report, “This year, the U.S. public debt is projected to reach 62 percent of the economy—up from 40 percent in 2008 and nearly double the historical average, according to recent Congressional Budget Office (CBO) estimates. The financial crisis and recession drove much of this debt swing, yet larger problems loom in the future.”

The report continues, “The unsustainable tsunami of spending on entitlement programs will accelerate as 77 million baby boomers flood into them. We are reaching a budgetary tipping point [where spending for entitlement programs automatically] crowds out other national priorities.”

Tax Hikes

With the federal government overwhelmed with debt and states lacking funds, political leaders are in a bind. If they stop paying for Social Security, Medicare and pension plans, voters’ lives will be severely impacted. Yet there is no easy way for the government to continue paying for the programs without incurring more debt. For now, there appears to be only one solution: tax hikes.

This comes during a time when the average American family has about $8,000 in credit card debt—consumer bankruptcy filings rose 11 percent over the previous year between January and September 2010, according to the American Bankruptcy Institute—and the 2009 total for consumer debt was $2.5 trillion, meaning $8,051 for every man, woman and child. And higher taxes are already on the horizon, with news headlines dubbing 2011 the “Year of the Tax Increases.” These hikes will come in three phases.

The first phase begins January 2011 with the expiration of the tax relief programs enacted in 2001 and 2003. These include a phasing out of personal exemptions and itemized deductions—the child tax credit being cut in half—the standard deduction for married couples reduced—the care for dependents tax credit being reduced—the return of the estate “death tax” (in which estates over $1 million will be taxed at 55 percent)—and the capital gains tax increasing from 15 percent to 20 percent.

The second phase includes over 20 new and higher taxes in the recently passed healthcare bill, several of which take effect during the coming year: an increase on taxes of over-the-counter drugs—an excise tax on name-brand drug manufacturers—and an already-in-effect tax for tanning salons.

The third phase affects the business sector and includes the alternative minimum tax (AMT), which will affect over 28 million families as opposed to 4 million last year. This law was written to limit income tax deductions of wealthy Americans. In 1970, 155 Americans paid AMT. Due to inflation, it now affects millions more.

In addition, the amount a small business can claim as an exemption for equipment purchases will be reduced from $250,000 to $25,000, tax credits for research and experimentation will be slashed, classroom expenses for teachers will no longer be eligible for deduction—among many others.

In short, America is in debt $120 trillion—46 states are running deficit budgets—and there is $8,051 of debt for every person in the U.S. The nation is truly in dire straits!

Yet this overlooks the most troubling part of the national debt.

Hidden Debt Total

It has been said that desperate times require desperate measures. Given this, some political minds suggest a substantial shift away from democracy toward socialism. Others want to reduce the size of government—meaning serious spending cuts.

Still others, unemployed, wracked with debt and facing foreclosure, see no other choice but to turn to religion—with many Americans considering the phrase written on all U.S. currency to be the answer: “In God We Trust.” These persons point out that the nation was founded on Judeo-Christian principles. They realize that some of the country’s civil laws are outlined in the Bible, such as bankruptcy policies that were derived from Old Testament laws in Deuteronomy 15.

While many see religion as a solution, others find the term “In God We Trust” antiquated. Still others go further and want it removed.

Would turning to God really solve the debt problem?

Notice what God promises for obedience: “If you walk in My statutes, and keep My commandments, and do them; then I will give you rain in due season and the land shall yield her increase, and the trees of the field shall yield their fruit” (Lev. 26:3-4). The meaning of this passage is plain: if one obeys what God says, he will receive abundance.

These are polarizing verses, drawing enthusiastic cheers from some and skeptical jeers from others. Yet Malachi 3:7-10 cuts to the heart of America’s hidden debt crisis. God begins by saying, “Even from the days of your fathers you are gone away from Mine ordinances, and have not kept them. Return unto Me, and I will return unto you.”

In the same passage, He then declares, “You have robbed Me.”

Seemingly confused, the nation that believes it follows God, remarks, “Wherein have we robbed You?”

The response from God is telling: “In tithes and in offerings. You are cursed with a curse: for you have robbed Me, even this whole nation.”

This is America’s hidden debt! Worse than all its other financial troubles combined, the nation owes God! Due to picking and choosing which of God’s laws to follow, or even ignoring them altogether, the U.S. has racked up massive debt due to disobedience.

God continues in the Malachi account, “Prove Me now herewith.” He states that if you obey His commands, He will “open you the windows of heaven, and pour you out a blessing, that there shall not be room enough to receive it.”

Note two things from this passage: (1) God does not require blind faith—He wants you to prove what He says is true; and (2) through obedience comes great blessings!

Sadly, the reality is this: almost everyone in the United States—even regular churchgoers—disregard Almighty God, instead trusting in the “almighty dollar” and a government ruled by the people. While every penny declares “In God We Trust” and people belt out the chorus of “God Bless America”—talk is cheap. The nation has ignored what God truly desires: “Be you doers of the word, and not hearers only, deceiving your own selves” (Jms. 1:22).

To address the hidden debt problem of disobedience—and in turn end all America’s financial woes—every individual in the nation must look long and hard at his life. Then, he must change.

For a clearer picture on where the United States is headed—and your part in it—read David C. Pack’s book {%503}.