Net Interest Rises and Rises some more
An examination of CBO projections 2024-2034
Projected Federal Budget Outlays, 2024-2034
In February, the Congressional Budget Office (CBO) released its 10-year projections for the Federal Budget. The report and the data I am using are here: https://www.cbo.gov/publication/59710
The Federal Budget is broken into Revenues (taxes and other income the government collects to fund its activities), Outlays (the money the government spends), and the Deficit (the shortfall between Outlays and Revenue when the government spends more than it brings in).
Here are the projected outlays:
You can see that the CBO projects continuing growth in government spending. This makes sense - even if you want to do exactly the same thing as last year, with inflation it is going to cost you more. So there is nothing particularly interesting about that.
What I do think is interesting in these numbers is the shifting composition of the outlays. Outlays are broken into mandatory, discretionary, and net interest.
Mandatory outlays refer to money the Federal government must spend as a result of a law requiring the expenditure. The only way to change the amount is for Congress to change the law. Mandatory outlays are mostly social programs, but some are not. These include Social Security, Medicare, Medicaid, SNAP (food stamps), and other similar programs. It also includes bills that the government has incurred, such as pension obligations to its retired civilian and military workforce.
In 2024, we are expected to spend the following in the biggest mandatory programs:
So we basically expect to spend half of the Federal budget on Social Security, Medicare, and Medicaid.
Discretionary outlays things that Congress has to authorize each year. In 2024, we expect to spend $850B (13% the budget) on Defense and $876B on everything else (14% of the budget), not counting net interest. That $876B includes everything from the State Department to federal parks.
Discretionary spending is expected to shrink from 28% of the budget in 2024 to 21% in 2034.
Some of the discretionary spending will be sucked into growing mandatory spending, but more troubling is the fact that most of it will shift to cover net interest, the interest payments we have to make on the Federal Debt. In other words, discretionary spending will grow, but its growth will be crowded out by the growth of the interest payments we have to make on the debt.
When the Federal government spends more on outlays than in raises in revenues, it runs a deficit. The Federal government then must borrow money to cover that deficit. Each time we have a deficit, it increases the overall debt. The Federal government then must pay interest on the debt. That is the net interest line. Here is a graph of the Federal Debt since January of 2000.
(source https://fred.stlouisfed.org/graph/?g=1ijXg )
It’s pretty simple math: if you have a bigger debt, you will owe more interest. Also, when interest rates rise, you have to pay more. So the recent rise in interest rates will cause net interest to increase even more.
The reason I chose to write about this today is because I saw a reference somewhere that in 2024 we would spend more on interest ($870B) than on Defense ($850B). In fact, in 2024, we will spend almost as much on interest as all the other discretionary government spending other than Defense.
In terms of abstract worries that I have no control over, I really worry about this. If we want our country, and specifically those who come after us - our children and grandchildren - to flourish, we are not setting them up very well. We are spending more than we bring in, and leaving them with the bill.
I think you should worry about this, too. If you think climate change is likely to impose harm on our world, then you should want to make sure our children will have the resources necessary to respond and adjust. If you worry about a second Cold War (as I write this, Iran has just launched a large missile strike against Israel, Russia continues its murderous rampage in Ukraine, and China continues to threaten its neighbors), then we need to be able to respond with more resources.
Humans are incredibly adaptable. They can flourish in all sorts of conditions as long as they have the resources to adapt. But if we waste resources now, our future will be poor, and we will not be able to respond to future challenges - whether climate, war, or something else. Rising interest payments are going to drain our resources. I doubt our politicians will do anything about this until it is too late (it’s pretty late), so it fits into the category of abstract worry. But it’s useful to understand what is happening in the world so that you can think about how to respond as an individual to a systemic threat. I’m not really sure what an individual can do about this to flourish, which is why it worries me. Vote for better politicians is one thing, but that’s not likely to fix the issue in the short run, since we seem to have a dearth of better politicians. I suppose the best thing is to keep watching and not pretend this isn’t a problem.