Watching the C-SPAN feed in regards to the American Rescue Plan, Rep. Tom Rice insists that we are "borrowing ~$5,500 for every man, woman, and child in [the US]."

I remind the people back home that the scale of this plan that she's talking about is $5,500 borrowed for every man, woman, and child in this country. And your children will pay that money back. They'll pay it back in higher taxes. They'll pay it back in lost opportunity. They'll pay it back in weaker economic growth.


When Congress spends money, is that money borrowed for the citizenry as he claims? I guess the bigger picture question I have is that if the government spends $2 trillion, is the citizenry expected to (eventually) pick up the tab? If not, is it essentially just a number recorded somewhere with some math tied to it for interest because that's how fiat currency works? A lot of the time it seems like Congress has the power to wave a magic wand and money appears.

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    Does this answer your question? Who is lending the money for a nation's debt?
    – divibisan
    Commented Mar 10, 2021 at 19:27
  • @divibisan Sort of yes, and sort of no. I understand the general purpose and function of a central bank and how that interacts with the federal government at a high level. I guess the bigger picture question I have is that if the government spends $2 trillion, is the citizenry expected to (eventually) pick up the tab? If not, is it essentially just a number recorded somewhere with some math tied to it for interest because that's how fiat currency works? Idk, a lot of the time it seems like Congress has the power to wave a magic wand and money appears.
    – Drise
    Commented Mar 10, 2021 at 19:32
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    this doesn't seem that much like a duplicate since the referred to question asks about who is loaning the money - 2 of its answers specifically go into details about who owns the debt, whereas this question is asking confirmation if US citizens are indeed indebted in real terms. both can pretty much coexist as far as I can see, plus this is asking a question about a specific politician's claim. Commented Mar 10, 2021 at 22:59
  • Other link which includes some sort of posterboard he tried to present. c-span.org/video/?509630-1/…
    – Drise
    Commented Mar 11, 2021 at 18:45
  • It's a fiat currency (no intrinsic value). The fed buys government securities creating a new money reserve which is then issued to banks. These banks, by fractional-reserve banking , can lend the great majority including to other banks essentially making a money multiplier. Even though one could say this is a debt, in truth it relates with the amount of money in circulation. The citizens won't be paying a loan of 5,500$, but they will be "paying" the "debt" in the form of inflation. Most central banks just try to keep the economic growth bigger than inflation. Nonetheless the system has flaws.
    – armatita
    Commented Mar 14, 2021 at 1:20

2 Answers 2


It is true that the money has to be repaid, but this perhaps misses some important points:

The money borrowed is real, the debt has to be repaid (or else the US defaults or devalues the dollar, both of which have significantly worse consequences than repayment)

But the repayment is not borne evenly by the citizenry. The way that taxes work means that those with more money (in the future) will shoulder a higher proportion of the costs.

Moreover, the alternative might be for individuals and companies to borrow an average of $5500 per person. This would fall most heavily on the poorest now, and the interest rates that would be charged against individual debt are much higher than those that the US must pay.

The "magic wand" is that interest rates for the USA are very low. Far lower than you pay on a car loan or a mortgage. This is what allows the US to borrow huge amounts of cash

Moreover the effects on growth are complex and non-linear. It is not obvious that borrowing less would lead to more growth in the future. Generally increased government spending at times of economic hardship can protect the economy, and provide for higher growth in the future (which then allows for lower tax rates, even while maintaining higher tax revenues). Similarly it is not clear what Tom Rice means by "lost opportunity" in this context.

So it is correct that sovereign debt is real money and not just a calculation tool. But it is rhetoric to take a debt, divide by the population, and calculate an amount that each person will have to pay.

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    A comment from DenisS over at Skeptics speaks to your last point. "Calling congressional spending "borrowing" against future generations is a matter of opinion and also tends to be colored by what side of a bill someone is on. For instance, I'm sure that Rep. Rice didn't have anything to say about "borrowing" when he voted in favor of the TCJA in 2017, a bill that ended up adding several hundred billion dollars to the deficit."
    – Drise
    Commented Mar 10, 2021 at 20:27
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    The money has to be repaid, but the debt doesn't have to be reduced. The state can easily pay the debt with new debt. Commented Mar 10, 2021 at 22:43
  • @Martin ".., in 1933, Arkansas defaulted on its debt. More recently, Detroit, filed for bankruptcy in 2013." And at onetime, Mitch McConnell suggested States should be allowed "to plug budget holes punched into the economy by the coronavirus pandemic", as opposite to wait handout from the Fed borrowing.
    – r13
    Commented Mar 10, 2021 at 23:22
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    Re borrowing an average of $X per person, this really misses the point that a great many people have no need to borrow anything, while some people - the ones most adversely affected by COVID - probably need more. If you could work from home, and didn't get sick, you've probably saved money by not commuting, not dining out or going to bars, not taking cruises or expensive foreign vacations...
    – jamesqf
    Commented Mar 10, 2021 at 23:32
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    It isn't necessarily true that the debt ever needs to be paid back. For instance some of the UK 1914 war bonds were undated gilts (repayable only as the government chose, which they did not take up for 100 years) - theguardian.com/business/2014/oct/31/… - and and it looks like the US Liberty Bonds were also redeemable only at the government's option - en.wikipedia.org/wiki/Liberty_bond ; See also en.wikipedia.org/wiki/Gilt-edged_securities#Undated_gilts ; still used in US: investopedia.com/terms/u/undated-issue.asp
    – abligh
    Commented Mar 11, 2021 at 7:41

When Congress spends money, is that money borrowed for the citizenry as he claims? I guess the bigger picture question I have is that if the government spends $2 trillion, is the citizenry expected to (eventually) pick up the tab? If not, is it essentially just a number recorded somewhere with some math tied to it for interest because that's how fiat currency works? A lot of the time it seems like Congress has the power to wave a magic wand and money appears.

Short Answer

Not every man, woman and child individually has the same debt when there is deficit spending by the federal government.

Mostly the economic impact is a transfer of wealth from the affluent to those who receive government aid. But the analysis is complex and multifaceted, and it isn't entirely a zero sum game.

Government Spending Has Real Economic Effects

It is conceptually easier to think about what the money is spent upon, than where the money comes from.

When the government spends $2 trillion, real stuff gets purchased from the finite pool of stuff that the economy is capable of creating at the time that the money is spent. If that $2 trillion had not been spent by the government, the capacity of the economy to create stuff would have been utilized differently for the benefit of different people.

Economic Impact On Bond Purchasers

In the short run, affluent people and asset rich governments and companies buy government bonds instead of spending the money used to fund those bonds in some other fashion, such as investing the money in private businesses or land or consuming it.

In the long run, those bond purchasers will get their money back with interest that just barely covers inflation, but will have faced almost no risk of default on the bonds. Government bonds interests rates are called the risk free rate of return, and currently that is very low, so bond purchasers aren't having much wealth diverted to them through this process in the long run.

The economic cost of the additional spending in the long run is met in two ways. First, through taxes. Second, through inflation.

Economic Impact Of Taxation

The U.S. federal tax system imposes very modest burden on poor and working class people, although, due to excise taxes like gas taxes and tobacco and alcohol taxes, and due to Social Security and Medicare taxes, it isn't zero.

Everyone else ends up paying taxes at rates roughly proportionate to their income, although the very affluent and big businesses that are largely owned by them pay less than their proportionate share in light of recent tax code changes.

Still, most state and local tax codes are, collectively, more regressive than the federal tax system.

Economic Impact Of Inflation

Inflation is largely driven by increases in the money supply. This creates a little direct revenue for the federal government, and additional direct revenue for banking institutions that participate in the process.

Inflation reduces the real cost of repaying government debt denominated in dollars and not adjusted for inflation (which most, but not all, federal government debt is) and likewise benefits people whose dollar denominated nominal debts are greater than their dollar denominated nominal assets. If your credit cards and mortgages and student loans are greater than your bank account balances and money you've lent to other people, you benefit, overall, from inflation if your income continues to grow with inflation.

Inflation hurts people who lend money or have long term dollar denominated obligations owed to them like landlords in leases not adjusted for inflation, or leases subject to rent controls in places like New York City.

These days, most lenders are risk averse affluent individuals who invest in bonds, and financial institutions like banks. The gains that banks make from increasing the money supply is more than offset by the losses that they suffer from inflation. But it is rare that inflation exceeds the interest rates that are paid to lenders (something that almost by definition only happens for long term fixed rate debts like fixed rate mortgages), even on an after tax basis (since taxable income from interest and capital gains isn't adjusted for inflation in the U.S.).

Interest rates usually can be dissected into a predicted rate of inflation for the long period and a risk free rate of return (which, combined are reflected in federal government bond interest rates), and a risk premium based upon the predicted likelihood of defaults and losses on the loan. Short term interest rates pass on inflation effectively to borrowers, while long term interest rates can be significantly eroded by inflation.

Thus, middle class working people and operating businesses and the federal government, who borrow large sums of money, benefit from inflation, the working class is indifferent to it, retirees and other poor people on fixed incomes are hurt by inflation, and financial institutions and rich people are hurt by inflation.

You Can't Get Blood From A Stone

Stepping away from the trees to see the forest, it is obviously true, that when you spend money on people who don't have much money, as the latest COVID relief bill does to a great extent, and the capacity of the economy of provide goods and services is spent on non-affluent people who otherwise wouldn't have had those resources, that the economic impact of that spending falls on people who are affluent and would have been able to use their wealth to have the economy provide them with goods and services it would have had the capacity to produce for them if it hadn't spend it on COVID relief bill beneficiaries instead.

This is ultimately going to be true no matter how the government spending is financed (i.e. with current taxes, or with government borrowing).

Arcane and detailed federal tax laws and economic analysis go into figuring out just who gains and loses, but that is the economic picture.

A Legal As Opposed To Economic Analysis

Legally, in contrast, when the federal government borrows money, that money has to be repaid in money with interest (modest though it is) at stated times (although it can be refinanced with new debt from possibly different government bond purchasers). Ultimately, that money has to come from taxes.

But this is an obligation of the federal government, not individual citizens.

It is not actually true that every man, woman and child will end up repaying the money borrowed.

In the long run, the taxes that the federal government collects to service and sometimes even pay off part of its debt comes mostly from upper middle class and rich people, directly, or indirectly through businesses that they own, with middle class and less affluent people repaying only a trivial share of the total debt serving and principal paying obligation.

Rhetoric about every man, woman and child owing federal debt is largely calculated to hide the fact that federal spending is redistributing societal wealth from rich people to poor people, even though poor people are not completely spared any impact of federal spending, as discussed below.

Federal Debt Service Viewed As Opportunity Costs

The day of reckoning when the principal of the debt is actually repaid can be deferred a long time, even indefinitely. But as the total amount of the national debt grows, and as interest rates on government bonds increases (which inflation as well as an increased real rate of risk free return will do), the total share of tax collections that go towards interest payments, rather than towards government purchased goods and services, rises.

The portion of the burden of current government spending that is shared by everyone (although not equally) is in the opportunity costs involved in the government not being able to spend money on desirable public goods and services given the tax revenues available to it, because it spends some of its taxes on interest payments to government bond holders instead. This opportunity cost hits the poor the hardest.

The middle class, which pays little in federal taxes, but receives little in direct government spending benefits, is hurt the least by deficit spending for COVID aid, and may receive a significant share of the proceeds of this bill.

The current poor benefit now at the expense of the future poor (who overlap but are not the same). But it is also at the expense of government spending that doesn't directly benefit anyone except the people paid to do that rather than something else, like money that would have been used for military spending, which goes to interest payments instead.

The rich are less well off, but they still more affluent than everyone else in society even after paying a big share of the ultimate economic burden.

The Impact On the Size Of The Pie

The decision to spend money on the goods and services that the COVID relief bill pays for rather than on the good and services that the capacity of the economy to produce goods and services would otherwise be used for in non-obvious, but does have effect on the total amount of goods and services produced in the economy in the short term and in the long term.

Utilizing Idle Resources

If COVID spending causes economic resources that would otherwise have been idle to be utilized, then it increases current GDP.

For example, if COVID funds allow people to buy more school supplies, and the school supplies factory otherwise would have been idle with laid off workers collecting unemployment and its owners losing money because they had fewer sales, it could increase GDP.

This effect is sometimes known as Keynesian economic policy.

Shifting Funds From Investment To Consumption

In general, COVID funding shifts resources to people likely to immediately consume from people more likely to invest their funds. If there are lots of great investments that aren't getting funded that could hurt GDP growth. But if big businesses are holding all their resources in foreign bank accounts because they can't find any opportunities worth investing in at the moment, as reflected in low interest rates (which reflect the supply and demand for investment funds) then more consumption and less investment helps GDP growth.

Different Sectors Of The Economy Are Impacted Differently

The shift in funds is also not neutral. Even if both people bearing the economic burden of COVID bill spending and people who receive it would both consume 100% of those funds immediately, it means that fewer luxury goods and services are produced (hurting everyone involved in that part of the economy) and that more good and services for working class and middle class people are produced (helping everyone involved in that part of the economy). In terms of GPD impact and economic growth, there are always going to be sectors that are winners and sectors that are losers.

Some Government Spending Is Investment Spending

Government spending in the COVID bill, and government spending, in general, is also not all just transfer payments, even though the $1,400 relief checks receive a lot of attention.

Money spent to produce and distribute vaccines could make it possible to put the pandemic behind us and make the whole economy more productive again after a short term, Great Depression scale hit.

For example, the tourism industry will benefit greatly from the production and distribution of vaccines even though the firms in that industry couldn't individually make that kind of collectively health care investment. It is still a form of investment spending that benefits their industry. Ditto bars and restaurants and commercial landlords.

It is entirely possible and even plausible that spending money on producing and distributing vaccines is the most valuable investment in terms of rate of return available in the economy at the moment.

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    This is incredibly detailed and thorough. Thank you so much for the well articulated insights.
    – Drise
    Commented Mar 11, 2021 at 15:51
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    The last paragraph really hits the nail on the head.
    – csiz
    Commented Mar 11, 2021 at 18:20
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    Yeah, but the GOP's gotta pretend to still care about fiscal responsibility, even though their concern for it goes out the window every time the question of military spending comes up.
    – Ian Kemp
    Commented Mar 12, 2021 at 10:50
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    @gerrit I believe that still counts as utilizing it differently. Instead of peoples' time being utilized to sit at home watching football it is used to produce stuff. Commented Mar 12, 2021 at 17:03
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    @johndoe explain why there isn't much inflation Commented Mar 15, 2021 at 17:03

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