crossing lines

debt repayment and defense

Every single action creates consequences as does every single trade off. Two scoops of magnificent caramel-topped ice cream is a choice that thrills the taste buds (or did mine before I became a non-ice cream consumer) but is a whole of sugar and calories. Neither of those is fatal in any individual portion but more than once sent me sugar-induced state of semi-paralysis. I loved the caramel richness but hated the sense of having to wonder why I felt so loggy for a good two hours after consumption.

Similarly, getting a weather forecast for intense sun when a blond or redhead is walking along a beach means the individual must decide to apply sunscreen with high spf or suffer the intense discomfort of a severe sunburn six hours later, lasting for several days. In those ‘good old days’ so many folks want to recapture, a child could get that sunburn by either choosing not to apply (and reapply, depending on time involved) the sunscreen or by having parents who didn’t pay sufficient attention to these warnings. Turns out that accumulated severe sunburns can make skin cancer more likely later in life. Actions create consequences. Ooff, intentional or not, this consequence can be both painful and dangerous.

Two writers at the Council on Foreign Relations pointed out yesterday that the United States is at risk of our choices leading to a diminished standard of living into the foreseeable future. The cause is the reality that required repayment of interest on the federal debt, a topic we covered several times last year in ACC, now requires more federal expenditure than we are spending on defense, a single large item in the budget. The authors, Benn Steil and Elisabeth Harding, explain the topic quite effectively.

It comes down to the reality that we have borrowed trillions of dollars (32 trillion, I believe) to allow our government to fund the U.S. budget because our tax policies bring in far less revenue than our spending habits require. Gucci tastes funded by rural North Dakota school bake sales. Because the debt (the aggregate amount the U.S. government still owes for money borrowed to pay for its spending since the nation began in the 1780s) is a compounded amount rather than the accumulated yearly deficits (the difference between revenue and spending), the amount we owe is linked to interest rates just like any of our individual credit cards or home mortgages. As those interest rates change, so does the amount we owe (already a huge number regardless of the specific interest rates).

Recently the interest rates, along with government spending regardless which party controls the levers of government, have led repayment costs to escalate significantly. Because loan repayment is a contractual obligation, our Constitution says we must repay interest out of our federal budget initiated by the House of Representatives, agreed to in conjunction with the Senate, and signed by the president. We don’t keep some side cash sitting around to pay for debt expenditures in a hidden cookie jar. These repayment amounts have become, in truth, another whole obligation as if a cabinet department.

And the Debt Department is a hungry, impatient department. Steil’s and Harding’s charts project that debt repayment is now just under 20% of the federal dollars the government spends annually—one of every five dollars goes to paying the debt.

One of every five dollars goes to pay for money we borrowed (past tense) already. This is not new federal spending in the send of new programs.

Steil and Harding contrast to DoD spending in the title is actually a U.S> preference in a world where Americans feel the need to respond to threats abounding. America’s defense budget for AY 24, once it finally passed, was $849.8 billion. The most useful comparative figures I could find, however, addressed the prior year when DoD received 13.3% of the federal budget.

DoD spending as dropped as a percentage of the budget expenditures but it is still climbing in actual terms. This is why it gets more expensive daily.

DoD during the Cold War vastly required greater spending than any other department but is now behind Medicare, the federal health care insurance program for geezers over 65 (including your author) and those disabled among us. in 2023, Medicare became more expensive as a result of both an aging population and the expense of health care itself. So, Steil and Harding could have noted that repaying interest in the debt now outstrips two of the three largest budget items which each clock in at more than $800 billion annually.

The third most expensive item is the Social Security program instituted almost a century ago to assist elderly who did not retire prosperous but need assistance to survive an ever more costly retirement. On the surface, Social Security is self-funded by taxes you and I pay directly from our paycheques. Social Security, however, goes to every American on the basis of how much she or he contributed while working.

Unfortunately, the surpluses that the Fund ran (taking in more taxes than claims paid out) between 1984 and 2009 terms have been deficits over the past 14 years. Since Social Security payments are a calculation, based on a standard for beneficiaries’ contributions rather than on some other measure, we are paying out much more as Boomers retire. Repeated efforts to address this imbalance by imposing a ‘means test’ (sending benefits only to a retiree making say 20% of some set number) or some other financial fix are politically impossible because Social Security is seen as an entitlement for most seniors, regardless of their need for the cash..

To make up for the short fall, Social Security must—you guessed it—borrow money to make up the difference, but does so through selling Treasury Bonds rather than simply adding to a unfunded mandates. The problem is that those bonds pay some interest to incentivise someone buying them, thus adding a smaller amount to the deficit but an amount.

The federal budget has three kinds of expenditures: mandatory spending (Medicare, interest on the treasuries sold by Social Security, and Defense) which makes up a big portion of the U.S. government spending, discretionary spending (everything else in the other cabinet departments, emergency response, etc.), and repayment on the debt which is again absolutely mandatory to assure our credit rating receives the best interest rate.

The latter category is beginning to crowd out the others, slowly but inexorably.

Spending more on debt repayment is both required and discouraging because the current political configuration leaves virtually no palatable choices. Defense and Medicare, as currently constituted, are sacrosanct budget items. If anything, I cannot see any conditions by which they won’t continue increasing in cost—which in turn drives up the budget deficit which then drives up the debt. Either of those two massive programs could undergo cuts but I see absolutely no evidence any political support on either side of the aisle would support that choice. Republican and Democratic voters alike depend on Medicare as Americans’ suffer increasing chronic diseases while the cost of treating those problems escalates. No savings there unless a means test were imposed which would be a firestorm for the profiles in non-courage on the Hill—or in the White House. Many politicians talk about buts but know they will not pass so it’s a free shot at the other side. Too many Americans ar ignorant of the budget and who pays for what in their daily lives.

Fixing the problem through cutting entitlements is a fantasy because of political realities.

Cutting Defense is a target with similar problems: deployments of American women and men to deter bad guys, protect valued allies and partners, and keep the world ‘peacefully’ is who we are these days. I see no indication we will find any manner to cut defense, regardless of those who say we should put America First. We don’t spend much on allies and partners; they spend on those relationships because they support the national interests of the allies and partners. We spend mostly on American-built extremely expensive weapons systems and the U.S. personnel who use them. A politician who tells you she or he is going to reduce military spending has about as much chance of that as I do—and I am not in any responsible position.

Then the argument becomes ‘we will cut wasteful spending’, a euphemism for some type of discretionary spending for which the speaker would rather substitute her/his preferred programs. The problem is all those ‘wasteful programs’ cited in debt ceiling stand offs last winter and the winter before as Republicans said they would not raise the debt ceiling (the amount we can borrow for all of this) don’t amount to enough to solve the problem. Yes, it’s a $6 trillion budget (as of 2024) but if nearly $9 billion is Defense, $9 billion is Medicare, and a trillion goes to debt interest repayment, that is a third of the entire budget in a single year rather than some massive portion as it is. Beyond the mandatory spending, other items are pretty small in the budgetary sense.

As Steil and Harding point out, this leaves us ever fewer dollars to spend in discretionary items. We are most definitely, during our polarised era, seeing no unity on what we would cut or how we could go about it. And there certainly is no fiscal space for any new programs such as truly tackling Alzheimer’s through federal research or tackling climate change in a methodical, serious manner.

In short, Americans will see their government increasingly consumed by paying off the unavoidably growing debt.

We could raise taxes but that is de facto impossible because of anti-tax groups seeking to keep ‘government small’ (Hint: it isn’t working because of the magic of deficit spending). Too few voters seem to grasp the challenge; I’m not sure elected officials do, either.

In short, perahps this is how great powers decline without a way around the truth.

I welcome your thoughts, questions, and concerns on this topic. It’s obviously not motivating a bipartisan response to address the second by second deterioration in our condition since debt is compounded interest. All suggestions are welcome!

Thank you for reading actions Create Consequences today and any day. Thank those of you who are subscribers putting your resources to support this work.

Be well and be safe. FIN

Barry F. Huston, ‘Social Security’s funding Shortfall’, In Brief, Congressional Research Service, 10 May 2023, retrieved at https://crsreports.congress.gov/product/pdf/IF/IF10522

Sudiksha Kochi, ‘Fact Sheet: Social Security does contribute to the federal deficit and federal debt’, USAToday.com, 12 March 2023, https://www.usatoday.com/story/news/factcheck/2023/02/08/fact-check-social-security-does-contribute-federal-deficit-debt/11185952002/

Mark Miller, ‘Social Security and the U.S. Deficit: Fact and Fiction’, Reuters.com, 1 November 2018, retrieved at https://www.reuters.com/article/idUSKCN1N64GL/

Benn Steil and Elisabeth Harding, ‘For the First Time, the U.S. is Spending More on Debt Interest than Defense’, Blog Post, Council on Foreign Relations, 23 May 2024, retrieved at https://www.cfr.org/blog/first-time-us-spending-more-debt-interest-defense

USA Facts Team, ‘How much does the U.S. spend on the military?’, USAFacts.com, 11 April 2024, retrieved at https://usafacts.org/articles/how-much-does-the-us-spend-on-the-military/