The national print and broadcast media have made their decision to go all Trump, all Russia, all the time, so some important things that happen domestically don’t receive a lot of attention. For example, the news in late June that 2017 tax revenues are coming in well short of estimates – resulting in an anticipated deficit of $700 billion for this fiscal year – generated little coverage.
Let this sink in for a minute. We are not involved in a hot war anywhere in the world right now; we have more or less full employment; and we have historically low interest rates. Yet we are running a budget deficit that just jumped by nearly $100 billion to $700 billion. But the $100 billion or so shortfall in tax receipts was deemed insignificant in comparison to the news that Donald Trump Jr. took a meeting with a Russian lobbyist last year.
Unfortunately, in 40 years or so – when Donald Trump Jr. occupies the same place in U.S. history as William “Billy Boy” Carter does today – the national debt will be generating a great deal of news coverage. That is because, if it continues on its current trajectory, that debt will essentially swallow us whole.
Lest I be accused of economic alarmism, let me explain. The national debt – the aggregate of all those pesky annual deficits – now stands at $20 trillion, give or take a few hundred billion. Interest on that debt, paid to holders of various U.S. Treasury instruments, will be about $266 billion in 2017.
That is already the fifth largest budget item (after Social Security, defense, Medicare and Medicaid) and represents 6.5 percent of the U.S. Federal budget. That might seem tolerable, but the thing about the national debt is that, to borrow the title of an old Temptations song, “It’s Growing’.
Debt service as a percentage of the budget will grow because a) the national debt is getting larger, not smaller each year; and b) interest rates, after 10 years at near-zero levels, are creeping up to historically normal rates.
By cutting taxes while launching the war on terror, George W. Bush doubled the national debt in eight years, from about $5 trillion to $10 trillion. By launching programs to fight the Great Recession of 2008 (while continuing many elements of the war on terror) Barack Obama doubled it again, to $20 trillion, in another eight years. At some point, the law of large numbers kicks in, so the doubling will slow down, but each trillion-dollar increase in the debt represents another $13 billion or so in interest payments at current rates.
That’s $13 billion each year — $130 billion over the course of a decade – unavailable for infrastructure investments, student loans, food stamps, national defense, Medicare or whatever worthy or unworthy program Congress and the President see fit to spend it on.
The impact of interest rates is even more scary. The big drop in interest rates brought the cost of debt service down while the levels of debt tripled. As interest rates rise, the Office of Management and Budget predicts that debt service will be $787 billion or 12.2 percent of the budget in 2027 – just ten years from now. That’s more than we currently spend on any single program except Social Security, and much more than we spend on all non-discretionary, non-defense spending.
As the great Instapundit Glenn Reynolds says, “What can’t go on, won’t”. We need a serious, non-partisan national debate – now – about how to head off a rolling disaster. We need to talk about taxes (how to get more, rather than less revenue from corporations and individuals) as well as how to fund previously sacred cows such as Social Security and Medicare. We need an objective analysis of whether “investment” spending (on things like coding boot camps) might have a more or less immediate return (what is the gain to the Federal coffers of turning an $18,000 per year barista into a $70,000 per year tax-paying software developer?). We need a re-examination of our defense commitments and posture around the world, and how much we are willing and able to pay to maintain them. We should be looking at everything in this light. If we can’t pay for it, we can’t do it.
Given the current climate in Washington, there is little evidence that any of these discussions will take place anytime soon. That should not stop concerned citizens from ringing the alarm bell, however. I don’t have the scientific background needed to make an objective analysis of the climate change threat, but I can add, subtract and calculate interest rates, and I can guarantee that the deficit and the burgeoning national debt represent an immediate and terrifying threat to our nation and our way of life. Even with a $20 trillion debt, it’s not too late to turn things around, but it will be soon.