Soaring Interest Payments the Cause of Obama’s Incredible Shrinking Discretionary Budget

Recent college graduates know a lot about debt. Many have racked up debt burdens that they will be paying back for years. Their monthly payments – often as much as $1,000 – will limit their ability to live the lifestyle their salary would otherwise entitle them to. And their interest payments are a demoralizing force that feels a lot like throwing money into a toilet and watching it swirl down the drain. I personally can attest to how exhausting it is to pay hundreds each month, only to see your loan principle stay about the same.

Much the same problem is now happening in the federal budget. The national debt has grown so large that Washington must to spend ever-more exorbitant amounts just to keep their creditors happy. President Obama’s budget, which continues the trend of record deficits, is a perfect example of how problematic this is. As Kevin Williamson writes for National Review:

“If enacted, Barack Obama’s latest budget would mean that in just ten years, interest payments alone on the national debt would begin pushing the trillion-dollar mark: $763 billion a year by 2023.

. . . [L]et’s stay with that $763 billion a year for now. How much money is that? It is more money than the federal government spent on anything in 2011: The largest single spending item in 2011, Social Security, amounted to only $725 billion. Department of Defense spending was only (only!) $700 billion, and all nondefense discretionary spending combined amounted to only $646 billion.”

Sadly, even that may be a rosy scenario because Obama’s budget continues to assume rock bottom interest rates. But if creditors begin to get even moderately antsy, to the point where rates tick up—not even to their historical averages, mind you—the federal government could be on the hook for $1 trillion a year in interest.

Obviously, this is a serious concern for conservatives. Interest payments mean money is being taken out of Americans’ wallets (and out of the economy) to be paid back to creditors, many of which are foreign governments. But it should be a serious problem for liberals as well. After all, it’s money that is being taken out of priorities like Social Security, Medicaid and the discretionary budget and used to make interest payments with no tangible benefit.

“This is the Big Squeeze,” writes Veronique de Rugy for National Review. “[B]y FY2023, mandatory and interest spending will consume 77 percent of the total budget. Discretionary spending will be left with 23 percent of the budget.”

It’s a concern shared by the New York Times’ David Brooks. “Under [Obama’s] budget, domestic discreintary spending would be lower as a share of G.D.P. than it was under Reagan, both Bushes and Nixon,” writes Brooks. “When it comes to this category, Obama’s budget would take us back to Eisenhower levels.”

But that’s what you get when you obstinately refuse to reform entitlement programs, which are the main driver of our deficits.

To think of it another way, if President Obama’s budget scenario comes to fruition and we are paying $763 billion per year on interest, just imagine what could be done with the money. Liberals could dramatically increase Social Security payments with little to no impact on the deficit. Conservatives could give a tax credit of nearly $2,500 to every man, woman and child in the United States. Or, if a streak of bipartisanship broke out we could do a little of both.

Instead, we are stuck making interest payments because Washington in general and Obama in particular couldn’t keep their spending habits in check. Which leaves current and future generations to pay ever-increasing amounts of taxes just to pay off previous spending. As any college graduate who is currently in their loan repayment period will tell you – that’s not a fun place to be.