Federal Government Debt Undermines the Programs It Finances
By Randall Holcombe • Monday January 21, 2013 1:14 PM PDT • 6 Comments
Just looking at the rate at which the federal government’s debt is growing is unnerving. If you’re brave, you can look here. The table shows federal debt on September 30 of each year, the end of the federal government’s fiscal year. The numbers almost speak for themselves.
About 37.6% of that debt was accumulated during the last four years, from 2008 through 2012. Those years saw the federal debt grow by more than $6 trillion; quite amazing when you consider the federal debt was a bit under $5.7 trillion in 2000. The federal government’s debt has increased more under President Obama’s first four years than it did in the nation’s first 224 years.
The 12 Bush-Obama years account for about two-thirds of the federal debt. Under President Bush the federal debt increased by $4.4 trillion, and then another $6 trillion under President Obama.
One reason the federal debt presents a problem in the future is that interest must be paid on it. Today, with interest rates at historic lows, interest on the federal is still about 6% of federal spending. But that will go up when interest rates rise, and will go up because the federal debt will continue to increase.
The interest rate the federal government pays on its debt averages 2.2% in today’s low-interest environment, but it is not difficult to imagine that rate doubling to 4.4% or tripling to 6.6%, in which case the interest on today’s debt would go to 12% or 18% of the federal budget, ignoring any impact of future deficits.
As the president and Congress look at threats to entitlement programs, the biggest threat is the current budget deficit.
Those entitlement programs (mainly Social Security, Medicare, Medicaid) are the largest share of federal spending, so those programs, as they presently exist, are the biggest threat to their own continuing existence. What’s worse, with Obamacare, our government has promised us even more.
Look at the federal debt numbers above. This is not sustainable. That is the essential truth behind the politically unpopular idea that the programs must be reformed in order to save them. I am not saying the programs should be saved. I am saying their current profligacy dooms them.
Federal expenditures were $1.8 trillion in 2000, and $3.8 trillion in 2012. The huge deficits that financed that spending growth guarantee that in the future, rising federal interest payments will crowd out federal spending on everything else.
Tags: Budget and Tax Policy, Economics, Medicaid, Medicare, Nanny State, Politics, Social Security, Taxation, The State, Welfare 
We always hear how Social security,medicare,and medicaid are the largest share of federal spending. It appears to me that this is used as an excuse to throw money away elsewhere. Folks that paid into Social Security should be considered as having a binding contract to receive their benefits. Cut out ALL the benefits for foreign aid, the 6 billion Obama promised to Burma and other Asian countries probably won’t be counted as Foreign Aid, defund Foreign aid House of Representating someone else.
RRT | Jan 21, 2013 | Reply
Foreign aid is less than 2% of the budget. Eliminating it will not change anything. Social security, medicare, medicaid and defense spending: without a dent in some of these four “elephants” nothing can be done about the debt.
Dan | Jan 21, 2013 | Reply
According to your chart,the first 8 years of the chart debt went up just shy of 5 trillion but the last 4 years it has gone up just shy of 5 trillion.They have said for years Social Security, Medicaid was being plundered by for other uses. Yes we need cuts in Military but not to the extent of being sitting ducks for any nut that wants to take a shot at us(9/11) and the post above about a social contract with the U.S gov for SS is right,they have been TAKING that money out of my check all this time with the promise that I will get it back at 65 and now they want to change( I think I want my money back NOW)But first President/Congress/we need to put people back to work so the Gov,us are not footing the bill at an alarming rate of unsistainability.
J Roland | Jan 22, 2013 | Reply
People like to think that social security is something that is ours, that it is an involiable contract. If social security belongs to us, then why did the government get it in the first place? Are we so paternalistic that we cant allow people to save thier money, earning dividends, or invest it in another way, accepting some more risk in the hope of a better life? Could our money be used to get people through job loss or another personal crisis, or is getting old the only difficulty thay justifies getting our money back? And if social security is a contract, I don’t remember signing.
Will Leach | Jan 22, 2013 | Reply
Why don’t you tell the truth? A lot of the USA debt is owed to SS. They have been borrowings our money for years. Al Gore wanted to put it in a lock-box. GEB took it for war.
pop | Jan 25, 2013 | Reply