National-debt interest now costs more than Medicare or defense

By Brett Arends

Last week we got 'good news' on Social Security and Medicare. Here's the rest of the story.

Last week we supposedly got "good news" on Social Security and Medicare, because the trust funds are in slightly better shape than a year ago.

But here's the rest of the picture.

Interest payments on the ballooning national debt have now for the first time exceeded every other individual item in the budget except Social Security. Debt interest through the first seven months of this fiscal year has just topped $500 billion, reports the U.S. Treasury - about $4,000 for every household in the country.

Repeat: This is just the interest. Think of the national debt as an interest-only mortgage. Or, better still, as a negative amortization loan, where the bill just keeps getting bigger year after year.

That interest bill was bigger than the entire Medicare budget - a "mere" $465 billion - through the same seven months. It was even bigger than everything we spent on national defense.

Nothing to see here, folks. Move right along.

"What a fact," says Maya MacGuineas, president of the Center for a Responsible Federal Budget. "What a statistic. It's a big deal."

It was MacGuineas' nonpartisan think tank which uncovered the stunning news, after following the latest reports emerging from the Treasury.

Interest on the debt is currently the fastest-growing part of the budget, the CRFB reports. Debt interest, just $345 billion in 2020, is on track to hit $870 billion this year. The share of the national economy just spent on servicing the national debt has doubled in four years.

"It is larger than all but one other government program," says MacGuineas. Just Social Security - for now - is bigger. "It's squeezing out other programs and squeezing out any room for new spending on tax cuts."

But sure, there will be lots of money when Social Security and Medicare need it, right?

The debt interest situation is set to get worse before it gets even worse than that. And that's true if interest rates come back down (which ought to help).

That's because absolutely nobody in Washington plans to bring the federal budget into any kind of alignment. "We are on track to borrow another $20 trillion over the next decade, without any new policies," says MacGuineas. "That is an eye-popping number."

The Congressional Budget Office forecasts annual deficits rising slowly from $1.6 trillion this year to about $2.6 trillion in 10 years' time.

Our national debt will rise from $28 trillion to $48 trillion. Debt interest will hit about 4% of gross domestic product. Put another way, debt interest will soak up 40 cents of every dollar we pay in personal income tax. (Or, three times all the receipts from corporate income taxes.)

This, by the way, is assuming the 2017 tax cuts expire completely, as current law anticipates. If they are extended, in total or in part, the debts will be trillions of dollars bigger.

This is the context in which people are running around talking about cutting taxes, or not letting the 2017 tax cuts expire, or increasing spending.

Those of us with long memories remember that in 2000 the U.S. budget was balanced. There was actual talk back then about what to do when, by about 2010, the entire national debt was due to be paid off.

Hard to believe.

How did we get here? Simple. As Ernest Hemingway once wrote of bankruptcy, it happened "gradually, and then suddenly." First, President George W. Bush and Congress slashed taxes without bothering to cut spending. That policy became the new normal. Then, on top of that, we had a blowout spending binge during the global financial crisis, when deficits hit 11% of GDP, and again during the COVID-19 pandemic, when they hit 15%.

The national debt bomb is finally exploding under the U.S. Treasury in Washington, D.C. Nobody seems to have noticed.

Where will this lead us? If you work it out, let me know.

-Brett Arends

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05-14-24 0757ET

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