Interest payments are very real
December 18, 2012 1 Comment
One of the reported snags between President Obama and Speaker Boehner reaching a (possibly) bid deal to avert the fiscal cliff and more is Republican insistence that reduced interest payments on the federal debt that accrue due to lower spending/higher taxes not be counted as “spending cuts” for the purpose of determining whether a deal in “balanced.” This is beyond absurd.
Here is a recent article noting the need to reduce our deficit so as to reign in the size of our interest payment on the debt (around $220 Billion in FY 2012, or around 40% as much as we spend on Medicare). I tend to worry more about budget deficits than the average progressive, hence I wrote a book called Balancing the Budget is a Progressive Priority. One of the main arguments is that if we don’t reduce the size of our planned deficits given our tax and spending defaults, then in 2020 instead of $220 Billion, we will be spending ~$1 Trillion in interest payments annually….and that is if interest rates don’t rise for some unexpected reason, which would make this problem even worse. Said Erskine Bowles in a recent interview:
Erskine Bowles, a co-chair of the president’s bipartisan deficit-reduction commission known as “Simpson-Bowles,” has called the nation’s compound interest burden one of the biggest long-term challenges facing the United States.
“We’ll be spending over $1 trillion a year on interest by 2020. That’s $1 trillion we can’t spend to educate our kids or to replace our badly worn-out infrastructure,”
One of the primary reasons to go ahead and begin seeking deficit reduction even as our economy grows slowly is to avoid the “reverse compound interest problem” that is caused by the non discretionary payment of interest on our national debt in the future. Anyone saying reduced interest payments “don’t count” as future spending cuts that will come about due to a reduction of planned spending and increased revenue (deficit reduction) either doesn’t understand, or is not very serous about worrying about the deficit.