OPINION — Which federal government program do you think is most important?
Social Security? Medicare? Defense? Medicaid? How about highways, food stamps, unemployment benefits or national parks?
I’ve decried ever-growing federal expenditures and pointed out that we face a day of reckoning. That day is soon coming.
Lying in the shadows of the federal budget is a seldom-acknowledged monster whose appetite cannot be sated by tinkering at the margins of existing government programs.
The monster? Interest on the national debt.
Over the last 10 years, federal debt held by the public has more than tripled from $5.1 trillion to $15.9 trillion. We’ve been able to ignore the impact of this stunning increase because interest rates have been kept artificially low as the nation recovered from the Great Recession.
Today’s low interest rates are giving way as the Federal Reserve is steadily returning rates toward more normal levels. Short-term rates have risen about 2 percent over the last several years with further increases on the way.
In 2017, the federal government paid $263 billion in interest to bondholders, 6.6 percent of all federal spending. The Congressional Budget Office estimates that we’ll spend $915 billion in 2028, 13 percent of all federal outlays.
By 2020, we’ll spend more on interest than we’ll spend on Medicaid. Interest costs will surpass the defense budget in 2023. Interest will exceed the amount we spend on the total of all discretionary programs by 2025: housing subsidies, national parks, NASA, National Institutes of Health, education, infrastructure, agriculture, the court system and all the rest.
The Treasury Department reported that interest expense rose 20 percent last year, making it the fastest growing major segment of the national budget. In the next five years about 70 percent of the federal debt will mature and need to be refinanced at higher interest rates.
How will we pay for all this interest? Simple, just like we have in the past. We’ll borrow even more and use the proceeds to pay interest. That’s like borrowing on one credit card to make the minimum payment on another.
Albert Einstein was asked to name the most powerful force in the universe. His answer: compound interest. When we borrow to make interest payments, we’re under the thumb of that most powerful force.
You and I can’t play the credit card game for long. Our country has gotten away with it for decades because we have the best credit in the world, a safe haven – at least so far.
A wide variety of foreign governments, domestic financial institutions and individual Americans have purchased our bonds. The People’s Republic of China is our largest creditor, thanks to many years of trade deficits.
But as economist Herb Stein said, “If something cannot go on forever, it will stop.” And it did stop temporarily in the mid-1990s.
Dean Baker, the co-director of the Center for Economic and Policy Research, a left-leaning think tank, explained, “We’ve been there before, and it’s worked out.” How? Thanks to tough budget choices by the Clinton administration and the Republican Congress, coupled with a long period of strong economic growth, budget deficits turned into surpluses.
Today with the Republican tax cuts for individuals and businesses, we’re in the midst of the strongest economic growth in decades. The question is whether Congress can find a balance of program cuts and tax increases that will balance the budget and begin to pay down our massive national debt.
“The fact that interest is the fastest growing part of the budget and is on track to eclipse other important pieces of the budget – for instance, spending on children – is going to cause more hesitation just to charge every single item,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a deficit watchdog group.
Any hope will rest first on Democrats abandoning their socialist fantasies: Medicare for All, free college tuition for all and guaranteed jobs for all. Instead they will need to cooperate with Republicans to find ways to slow the runaway growth of our existing entitlement programs.
The great Republican experiment with individual and business tax cuts will come into focus in the next two years. Experience has shown that lower tax rates boost growth and hence tax receipts.
If that proves to be the case, robust growth will significantly increase the government’s tax take as it did in the 1990s. That’s already proving to be the case for state governments. Several fiscal basket cases, Connecticut and New Jersey, are benefiting unexpectedly.
If growth falls flat, Republicans will need to give in on tax increases, dialing back on those aspects of the recent law that have not generated hoped-for returns.
Can Congress do it? Recent experience says no. Instead we’ll get some trimming around the edges, with today’s Congress hoping to kick the can farther down the road.
Sometime soon stark reality will force serious action. In Samuel Johnson’s words, “Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”
Howard Sierer is an opinion columnist for St. George News. The opinions stated in this article are his own and may not be representative of St. George News.
Email: [email protected]
Twitter: @STGnews
Copyright St. George News, SaintGeorgeUtah.com LLC, 2018, all rights reserved.
Well, we can always use the Trump model: hire a bunch of people you can’t afford, spend a bunch of money you don’t have – and file bankruptcy.
I guess I’d better start staying awake all night and worrying about it? It’s all the libruls’ fault. Those dastardly librul treehuggers. Yap yap yap, howard. cheers buddy.
*yawwwwn*
Did you say something, Howard? Oh, right. It’s all the left’s fault. Yeah, ok.
I’m going back to sl… zzzZzZZzzZZzzz.
Government spending won’t stop because politicians know its political suicide to cut programs. Our only chance is a robust economy to fill the treasury with tax revenues. For liberals to talk about adding free medical care for all is irresponsible.
da librulz dunnit!
Give the good reason Trumps economic policies have risen the debt $2 trillion during his presidency and then tell me how the dems helped him do that. 15k people laid off by GM and he wants us to pay for the wall, not Mexico. A known crook voted into the white house by republicans who stand behind his lies and dirty deeds. No wonder we’re headed off the cliff. But take head all you republicans, the rich will take your house and your job given to a family member.
Agree with some of the premise until we got to here:
“Any hope will rest first on Democrats abandoning their socialist fantasies…Instead they will need to cooperate with Republicans to find ways to slow the runaway growth of our existing entitlement programs.”
Interesting that Howard considers the first responsibility to be on the alleged socialist agenda of a minority of the Dems and not the bloated, deficit driven CRs of the current right. No doubt some of the left’s idealistic goals add significant expense but it takes some serious blinders by these pundits to ignore their own party’s extravagant waste, and its not normally in the relatively small category of social safety net programs.
Beyond that both parties do need to honestly talk about our debt to China which continues to leverage its unethical economic practices to their nation’s benefit.
The federal government spent $2.5 trillion on social programs in FY 2017 and $2.74 trillion on social programs in FY 2018, an increase of $240 billion in Trump’s first budget year. The remaining $1.2 trillion in FY 2018 expenditures were so-called discretionary expenditures including $686 billion for the Defense Department.
Meanwhile, FY 2018 tax receipts increased from $3.32 trillion to $3.34 trillion following this year’s Republican tax reform as receipts always do when tax rates are lowered. Tax receipts are forecast to jump to $3.42 trillion in FY 2019.
The above numbers are easily verified online.
Increasing deficits are due primarily to the ever-increasing social spending on existing entitlement programs, not to increased Republican discretionary spending.
Funny way of presentation.
Take the mandatory budget. Hard to describe those items as anything but bipartisan given the way in which they have been adopted by both parties once they get pressure from their constuents. Plus, Social Security is the largest single category and its 100% funded on it’s own. So lets remove $1.05 trillion from your mandatory figures. Medicare is only funded 41% by the general fund. Medicaid is 100% financed through the general fund. That complicates the claim of entitlements as Social Security and Medicare are programs we pay directly into via payroll taxes.
When you actually analyze these facts than the mandatory budget financed by the general fund drops to roughly $1.2 trillion, ie less than the discretionary budget. And Medicaid (a true entitlement) is roughly half of the $800+ billion most consider “military spending”, not the $600 billion you cite.
You can twist the numbers to favor Republicans all you want but data analysis is clear about relative cost when it comes to programs financed by the general fund, ie the issue of concern. Those also show how the last two Republican presidents had larger single year deficits than Obama, ie bigger increases to national debt. Trying to make Republicans some sort of small budget heroes in this narrative and placing blame on liberals for the deficit and debt is at best a joke.
https://www.thebalance.com/u-s-federal-budget-breakdown-3305789
And to top it off the tax revenue has plateaued actually and even dropped as compared to GDP. We had larger growth and percentage under Obama. Not exactly the wonderous results of a tax break after all when viewed in the long run.
https://www.usgovernmentrevenue.com/federal_revenue_chart
Your lecture is flawed but I think you know that already.
? Yes, but… but , but 🙁 ???? “librulz are bad!” ?
When we gonna get sum real beer here ?
2021 – 2022. We finally get it after the ice cap melts and the Utah State government is irrelevant due to inherent National upheaval from rapid climate change.
Nicely written article Mr. Sierer, well stated.
How to tame the debt dragon:
1..We need a balanced budget ammendment (like 15 years ago) and that would force those in the swamp to deal with the numbers and keep the debt more stable. It will hurt … maybe we need the “Victory Garden” hope again with Fireside addresses by our President.
2. Our government might have to reign programs in if needed. Cut non-essential Federal (and state) staff and programs
3. Think of ways for government to make (create) money such as charging countries for being the peace keepers or move our military bases out of the countries. The military could be looked at like a “service.” If our military isn’t being paid for service, pull it out, downsize to meet the need.
4. Cut back aid to countries,
5. Stop the negative income tax, everyone should pay taxes, even if it’s only 2%. Helps people feel ownership in our democracy’s process.
6. Allow market forces to flow and ebb naturally. Minimal rules.
7. Consider which government programs might be run by private/non-profit, CBO’s rather than by government. Most government programs are run by committee (very inefficient and costly) and people tend serve the agecy’s or their own needs.
What areas currently under government might be turned over to the private sector? Find out and consider straight grants. More efficient.
Oh …. so many things to consider that could help peel the US debt away … or it will self-destruct. Once the dollar is devalued and another currency rules markets, then it’s too late.
#8. GO TO WAR. – conventional of course. Sad, horrific, but inevitable solution. Remember IN GOD WE TRUST. In economic consensus reality we trust. In the Federal Reserve we trust – or not. If we go down so do the official anonymous owners of the Federal Reserve as well. No worries. As long as Americans have the right to bear arms, game theory is on our side. Where else can you go? Russia, China, or N.Korea? Have fun!!!! Crypto currency is going down for the count as well. Ask yourself how much money is counterfeit out there? Hope that conveys the point. Keep the faith is my answer.
“I’ve decried ever-growing federal expenditures and pointed out that we face a day of reckoning. That day is soon coming. The monster? Interest on the national debt. Over the last 10 years, federal debt held by the public has more than tripled from $5.1 trillion to $15.9 trillion.”
To which Trump’s tax cut is adding another $1.5 trillion! (Thanks kids and grandkids.)
“The great Republican experiment with individual and business tax cuts will come into focus in the next two years.”
With most of that favoring business, especially real estate.
Everyone has their own pet Government Program…And that is why No real cut to government spending has ever occured. (And No, it does not matter Which of the Two Parties are in Power…They are One in The Same.)
Right wing, left wing. All part of the same turkey!
Every knee shall bow, and every tongue shall confess that Trump is the Trump!