Interest on the debt is a huge threat
The justifiable and unavoidable focus on the highest inflation in 40 years should look beyond its visible impact on the economy and the cost of goods and services. While the most noticeable sign of increased prices appears at gas stations, where they are reaching record highs every day, there are less noticeable but more destructive long-term consequences of higher costs that should be made clearer to the American people.
Over the past two years, $4.6 trillion has been provided by Congress in response to the COVID-19 pandemic. The impact on inflation, particularly the timing of the $1.9 trillion American Rescue Plan Act in March 2021, is subject to some debate, but what cannot be denied is the impact this spending has had on the interest paid on the national debt. Between 2011-2018, interest on debt held by the public averaged $272 billion annually. Between 2019-2021, annual interest on the debt averaged $389 billion, an increase of $117 billion, or 43 percent. The president’s fiscal 2022 budget, which is the first to project deficits of more than $1 trillion for 10 consecutive years, estimates that FY 2022 interest on debt of $26.3 trillion will be $305 billion and reach $941 billion in FY 2031, or more than triple the amount for the current fiscal year. By that time, interest payments will account for 59 percent of the projected $1.6 trillion deficit.
The projected interest payments in the budget were made with the assumption that 10-year Treasury interest rates would be 1.4 percent in FY 2022, then average 2.2 percent for the next four years and average 2.8 percent for the following five years. But the 10-year Treasury interest rate is already 2.8 percent and likely to go higher given the Federal Reserve Bank’s plan to continue raising interest rates.
An increase in interest rates of 1 percentage point above projected rates, according to Brian Riedl of the Manhattan Institute, would raise interest payments by $30 trillion through 2051, and at that time the payments would be equal to 70 percent of all tax revenue. An increase of 2 percentage points would mean that interest payments would equal 100 percent of all tax revenue in 2051.
Despite this clear danger to financial and national security, President Biden continues to push for more spending and claims it will help reduce inflation and reduce the deficit. In the president’s FY 2022 budget, “waste” appears once, in reference to wastewater treatment programs, and “wasteful” appears once, in reference to tax havens. The only time President Biden has referred to wasteful spending has been in reference to recovering the COVID-19 relief funds that were stolen, a problem that should have been addressed well before the money was distributed.
Congress has even more responsibility for the fiscal tsunami facing the country. The 12 appropriations bills that are required by law to be enacted prior to the end of each fiscal year on Sept. 30 have only been passed on time in three years since the enactment of the 1974 Budget Control Act, and the last of those three was 1995. A budget resolution has been approved by the House and Senate only three times since 2011, and in 2018 and 2019, there was not even a vote on a budget resolution in either body of Congress.
Overcoming Congress’s lack of fiscal responsibility and preventing interest on the debt from becoming not only the largest federal expenditure, but also using up all tax revenue, will be difficult. Far too many members of Congress believe the answer to every problem is to create a program, and if that program does not work, they create another program rather than fixing what went wrong.
This process is contrary to everything that businesses and families do every day to make sure they do not go broke. They assess what they need, determine if is affordable and then stop doing something if it does not produce the intended result or it becomes too expensive. An automobile manufacturer cannot make six versions of the same car or truck if the first version does not perform as intended. They fix the problems or shut down the factory. A family that can only afford one car cannot buy two or three more new cars if the first car is a lemon. And they certainly cannot afford to buy anything at all if the interest payments on their purchases use up all of their income.
President Biden and Congress need to stop spending and start cutting before it becomes too late to stop interest on the debt from growing to become the government’s largest expenditure, crowding out all other federal programs, and using up all tax revenue.
Tom Schatz is president of Citizens Against Government Waste.