- US Navy photo by Mass Communication Specialist 2nd Class Adam Henderson
- The US government could spend more on debt then it does on the military with interest payments set to make up 13% of the federal budget a decade from now, The New York Times reported.
- The increase in borrowing costs has been brought on after a need to finance a rapidly growing budget deficit, made worse by tax cuts rising interest rates.
- The cost of interest is on track to be $390 billion next year which is nearly 50% more than in 2017, and it is already the fastest growing government expense, the Congressional Budget Office said.
- The deficit is soaring despite a booming economy, a situation economists say is uncharted territory.
The US federal government could soon spend more on interest for its debt then on the military, The New York Times reported. Interest payments are expected to make up 13% of the federal budget a decade from now, up from 6.6% in 2017. Tax cuts, spending increases and rising interest rates will make it more difficult to respond to future recessions or spend on other needs, the Times said.
More than $900 billion in interest payments will be due annually within a decade, outpacing increases in government military spending, according to the Congressional Budget Office.
“It’s very much something to worry about,” C. Eugene Steuerle, a fellow at the Urban Institute and a co-founder of the Urban-Brookings Tax Policy Center in Washington told The New York Times. “Everything else is getting squeezed.”
The cost of interest is on track to be $390 billion next year which is nearly 50% more than in 2017, and it is already the fastest growing government expense, the Congressional Budget Office said. Rising interest rates would have made the nation’s debt more expensive even without extra debts. But the tax cuts which were passed in late 2017 have increased the pressure on the federal budget and widened the deficit.
Next year, the deficit is expected to reach nearly $1 trillion, the first time it has been that large since 2012, when the US was still recovering from the financial crisis and rates were near zero.
In February, a bill was approved to raise federal spending by $300 billion over 3 years, which will further increase the financial burden. The Congressional Budget Office said that interest payments on the national debt are expected to triple over the next decade.
And Washington Republicans introduced legislation this month that would make the tax cuts permanent.
“The issue has just disappeared,” Senator Mark Warner, a Virginia Democrat, told the Times. “There’s collective amnesia.”
Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, told the Times: “By 2020, we will spend more on interest than we do on kids, including education, food stamps and aid to families.” The committee is a research and advocacy organization.
In the past, government borrowing went up during recession and went down during recoveries. Today, the deficit is soaring despite a booming economy. This means there would be less room to react in the event of another downturn.
The situation represents a journey into mostly uncharted financial territory, economists told the Times.