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The Real Cost of Government Spending

By Bryan Berky | December 14, 2018

It takes money to borrow money. This year it takes $371 billion. Ten years from now it will take $915 billion.

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The American people have heard a ton of squabbling and bickering about $5 billion versus $1.6 billion. For those not tuned into the daytime DC soaps this week, this debate is whether Congress will choose to put $5 billion, $1.6 billion, or some other amount towards border security or “building wall and building wall quickly.” The key word here is choose.

When it comes to national debt payments – there is no choice. There are no congressional debates or high-profile fights about how much to allot towards interest payments. It’s already settled. The holders of our $21 trillion in treasuries will receive their interest payments. Fortunately, for now, that only takes about 9% of the budget and 30% of the debt is held internally.

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But that won’t always be the case.

Our country’s finances are out of control. The Congressional Budget Office just reported that the federal deficit was $203 billion…in November. The Committee for a Responsible Federal Budget highlights that we are recording the largest deficit in history outside of wartime or a recession.

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Right now, thanks to a long run of historically low interest rates, interest costs on our debt have been manageable. Despite a 288% increase in the national debt over the past 20 years our interest payments have only increased by 7%. We are projected to add an average of $1.2 trillion to the debt every year for the next 10 years while interest rates are projected to rise to more normal levels. More debt and higher interest rates equal larger interest payments. We will spend $7 trillion over the next 10 years on these payments. Ten years from now annual interest costs ($915 billion) will be higher than defense spending ($769 billion), Medicaid ($655 billion), and all non-defense discretionary programs combined ($839 billion).

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And ten years from now it will be too late to do anything about it.  

This is bad news for all Americans, but wretched news if you are in the earlier part of your tax paying careers. Instead of your tax dollars being directed towards worthwhile investments, more and more of your tax dollars will be directed towards interest payments due to unrestrained spending of prior generations.

The Steuerle-Roeper Index of Fiscal Democracy measures the amount of tax dollars remaining after payments on permanent programs and interest payments on the debt. In 1967, 60 percent of federal receipts remained after mandatory and interest spending. Today, only 20 percent remain. In a decade, that number will approach zero. Eugene Steuerle’s index shows that “future generations will have no additional revenues to finance their own new priorities, and they will actually have to raise new revenues or cut other spending just to finance the expected growth in existing programs.”

The headlining millennial legislator Alexandria Ocasio-Cortez is taking Congress by storm with proposals to spend spend spend. Many are making her the face of the progressive movement that is disrupting the Democratic party in a similar way that the Tea Party demands for smaller government and lower taxes did to the Republican party nearly a decade ago.

Bold proposals to slash taxes or boost spending are luxuries of an era with budget flexibility. The next generation of lawmakers will not be a clash between small government conservatives or big government progressives, it will be about how we can manage to muddle our way through all the bills that are coming due. Sadly, true believers in lower taxes or bold government spending projects are setting up the next generation to have neither.

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