Interest on the federal debt is now so immense that it’s consuming 40% of all personal income taxes. The largest source of revenue for the federal government is increasingly being devoted to just servicing the debt, not even paying it down.
The problem is getting worse daily and will eventually result in even more pain for taxpayers.
The recent monthly Treasury statement from the Fiscal Service showed that the Treasury Department paid $88.9 billion in October on interest for the federal debt. That’s almost double what it paid in October of the previous year. Worse, the Treasury is projecting interest payments for the fiscal year to exceed $1 trillion. Every month that goes by, the Treasury increases that forecast as the outlook worsens.
The $88.9 billion in interest is larger than all but two line items in the monthly report, and one of those items is only slightly larger than the interest expense. The Department of Health and Human Services cost the Treasury $89.8 billion while the Social Security Administration used $117.6 billion. The cost of servicing the debt exceeded everything else, including military spending.
For further context, interest payments in October were greater than the expenses for the Departments of Agriculture, Education, Energy, Homeland Security, Justice, State, Transportation and Veterans Affairs, as well as the Environmental Protection Agency and NASA—combined!
This is the result of the politicians in Washington racking up a $33.7 trillion federal debt. It now takes over a fifth of all government revenues just to pay the interest, and the problem is quickly spiraling out of control.
As deficit spending continues unchecked, urged on by the Biden administration, the debt is growing at a breakneck pace—over $500 billion in October alone. That, along with higher interest rates, has increased the cost to service the debt at the fastest rate on record. This additional expense further increases the deficit, which of course further increases the total debt. The nation is trapped in a vicious cycle.
Even if the deficit were to vanish overnight, the interest expense would still increase because the Treasury doesn’t really pay off debt when it comes due—it rolls the debt over. That means it issues new debt to pay off what it previously borrowed, plus the interest.
The catch is that debt issued today must pay today’s interest rates, so the Treasury is rolling over debt at 5% that was previously issued at 1% to 2%.
It’s like a person who gets a bunch of credit cards with low-interest teaser rates and maxes out the cards, anticipating he can just transfer any balances to new cards when the introductory rate expires, only to find no such offers exist anymore. Now the financing charges are through the roof.
This sorry situation is a direct result of the Biden administration’s runaway spending and big-government agenda. Had President Biden literally done nothing when he got into office and simply allowed all the one-time emergency spending from COVID to expire, government expenditures would’ve fallen so steeply that we’d have a balanced budget today, with interest on the debt just half its current level.
Instead, the Biden administration and its big-spender allies in Congress have institutionalized multitrillion-dollar deficits, embedding the problem firmly into the fabric of federal finance.
To be clear, this problem is about policy, not politics. While the Biden administration has given it a violent shove into overdrive, Former Republican Speaker of the House Paul Ryan and Republican Senate Leader Mitch McConnell are just two of many Republicans who, over the years, have spent trillions of dollars we didn’t have, and done so with gusto.
The only way out of this debt death spiral is to cut government expenditures—and fast. Interest on the debt is becoming so large that the government will soon be forced to raise much more revenue if spending isn’t drastically cut. That revenue will need to come from either much higher explicit taxes or the hidden tax of inflation.
Taxpayers will be on the hook for trillions of additional dollars, regardless of the collection method. If federal finances continue on their current path, we are only a few years from the entirety of income taxes being needed to finance the debt. If people are struggling to make ends meet now, they’ll be in bread lines by then.
This piece originally appeared in Fox Business