Right On: Your favorite government program will soon be crowded out

December 12, 2018 Utah Channel 3

OPINION — Which federal government program do you think is most important?

Social Security? Medicare? Defense? Medicaid? How about highways, food stamps, unemployment benefits or national parks?

I’ve decried ever-growing federal expenditures and pointed out that we face a day of reckoning. That day is soon coming.

Lying in the shadows of the federal budget is a seldom-acknowledged monster whose appetite cannot be sated by tinkering at the margins of existing government programs.

The monster? Interest on the national debt.

Over the last 10 years, federal debt held by the public has more than tripled from $5.1 trillion to $15.9 trillion. We’ve been able to ignore the impact of this stunning increase because interest rates have been kept artificially low as the nation recovered from the Great Recession.

Today’s low interest rates are giving way as the Federal Reserve is steadily returning rates toward more normal levels. Short-term rates have risen about 2 percent over the last several years with further increases on the way.

In 2017, the federal government paid $263 billion in interest to bondholders, 6.6 percent of all federal spending. The Congressional Budget Office estimates that we’ll spend $915 billion in 2028, 13 percent of all federal outlays.

By 2020, we’ll spend more on interest than we’ll spend on Medicaid. Interest costs will surpass the defense budget in 2023. Interest will exceed the amount we spend on the total of all discretionary programs by 2025: housing subsidies, national parks, NASA, National Institutes of Health, education, infrastructure, agriculture, the court system and all the rest.

The Treasury Department reported that interest expense rose 20 percent last year, making it the fastest growing major segment of the national budget. In the next five years about 70 percent of the federal debt will mature and need to be refinanced at higher interest rates.

How will we pay for all this interest? Simple, just like we have in the past. We’ll borrow even more and use the proceeds to pay interest. That’s like borrowing on one credit card to make the minimum payment on another.

Albert Einstein was asked to name the most powerful force in the universe. His answer: compound interest. When we borrow to make interest payments, we’re under the thumb of that most powerful force.

You and I can’t play the credit card game for long. Our country has gotten away with it for decades because we have the best credit in the world, a safe haven – at least so far.

A wide variety of foreign governments, domestic financial institutions and individual Americans have purchased our bonds. The People’s Republic of China is our largest creditor, thanks to many years of trade deficits.

But as economist Herb Stein said, “If something cannot go on forever, it will stop.” And it did stop temporarily in the mid-1990s.

Dean Baker, the co-director of the Center for Economic and Policy Research, a left-leaning think tank, explained, “We’ve been there before, and it’s worked out.” How? Thanks to tough budget choices by the Clinton administration and the Republican Congress, coupled with a long period of strong economic growth, budget deficits turned into surpluses.

Today with the Republican tax cuts for individuals and businesses, we’re in the midst of the strongest economic growth in decades. The question is whether Congress can find a balance of program cuts and tax increases that will balance the budget and begin to pay down our massive national debt.

“The fact that interest is the fastest growing part of the budget and is on track to eclipse other important pieces of the budget – for instance, spending on children – is going to cause more hesitation just to charge every single item,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a deficit watchdog group.

Any hope will rest first on Democrats abandoning their socialist fantasies: Medicare for All, free college tuition for all and guaranteed jobs for all. Instead they will need to cooperate with Republicans to find ways to slow the runaway growth of our existing entitlement programs.

The great Republican experiment with individual and business tax cuts will come into focus in the next two years. Experience has shown that lower tax rates boost growth and hence tax receipts.

If that proves to be the case, robust growth will significantly increase the government’s tax take as it did in the 1990s. That’s already proving to be the case for state governments. Several fiscal basket cases, Connecticut and New Jersey, are benefiting unexpectedly.

If growth falls flat, Republicans will need to give in on tax increases, dialing back on those aspects of the recent law that have not generated hoped-for returns.

Can Congress do it? Recent experience says no. Instead we’ll get some trimming around the edges, with today’s Congress hoping to kick the can farther down the road.

Sometime soon stark reality will force serious action. In Samuel Johnson’s words, “Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”

Howard Sierer is an opinion columnist for St. George News. The opinions stated in this article are his own and may not be representative of St. George News.

Email: hsierer@stgeorgeutah.com

Twitter: @STGnews