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Despite Strong Economy, Interest On U.S. Debt Builds


Much of the U.S. government is operating this year on borrowed money. That's not automatically bad. Borrowing can be good if you get something for it like a house. Borrowing can be cheap if interest rates are low, as they are just now. But the U.S. government is borrowing a lot more than it was just a year or two ago. The budget deficit, the amount we spend that's beyond tax revenue, is over $1 trillion per year, unprecedented in good times. Until recently, the deficit had been going down. A forecast that President Trump's tax cuts would not increase the deficit has proven to be false. Maya MacGuineas has spent years on deficits. Her committee for a Responsible Federal Budget advocates changes to big programs like Medicare. Although, she admits that is not the only problem.

MAYA MCGUINEAS: The ignoring of the need to fix entitlement programs really has been irresponsible. That's more the frog in the boiling water, where a tax cut is the obvious, are you kidding me? How can you be doing that? It's both hypocritical and irresponsible.

INSKEEP: Which may be politically possible because when it comes to deficits and the debt, many citizens in this democracy do not even know what we are talking about. I feel we cannot do this often enough. Will you, at this point, remind us of the difference between the deficit and the debt and what each of those things matters?

MCGUINEAS: Yeah. And there are even some lawmakers who need to be reminded of that. But the deficit, of course, is how much we borrow every year. And normally, when the economy is strong, you would actually be running a surplus, where you're taking in more money than you're paying. And then when the economy's weak you finance it with deficits or additional borrowing. Right now we're on the verge of having trillion-dollar-deficits, despite the fact that the economy is strong. The debt is really the accumulation of all of those deficits over the years. We don't need to think about paying off the debt. We just want to have a point where our debt isn't growing faster than our economy. Right now we're on track where our debt is growing faster than our economy every single year forever. And that's the real problem.

INSKEEP: Well, that leads to a couple of questions. First, Republicans - some of them have dismissed this problem with the following argument, which I would like you to evaluate. They will say, so we're borrowing a little bit of money now. Lots of debt was built up, more so under President Obama.

MCGUINEAS: OK. Well, the debt that was built up under President Obama, which was large, was the result of a huge economic downturn. When President Obama entered office, the real challenge was, how are we going to fight this very troubling, worrisome recession? When President Trump entered office, the economic challenge was, we have a debt that, relative to the economy, is the highest it's ever been since World War II. It's twice as high as the historical average in this country. So there's a real fiscal challenge that President Trump faces, compared to the real economic challenge that President Obama faced. It makes sense that you have big deficits during times of big recessions. It makes sense that you do not when your economy is strong. And right now is a moment in the business cycle where we need to be getting control of this massive amount of borrowing that we've become dependent on.

INSKEEP: Hasn't it been really, really cheap to borrow money because interest rates for a decade have been so very, very low?

MCGUINEAS: Absolutely. We're starting to see that interest rates are moving up. Many people think that's likely to continue. But if rates go up just by 1 percentage point over 10 years, we will have to pay an additional $1.7 trillion in our debt payments.

INSKEEP: Are we heading to a period where debt service - paying interest on the debt - is going to be larger than some of the biggest expenditure items in the government?

MCGUINEAS: We're already there. So basically, in a year from now, we will be spending more on interest payments than we do on the program Medicaid. That's a central program of our government. And to be spending more on interest than Medicaid should be cause for alarm. In another year, we'll be spending more on interest payments than we do on spending in children at the federal level, which means we're paying more to finance our debts of the past than we are to invest in the next generation. And in about four or five years, interest payments are likely to eclipse spending on defense, which shows why this leaves us in a vulnerable situation from a national security perspective.

INSKEEP: Maya McGuineas, thanks for coming by.

MCGUINEAS: Thanks so much. Transcript provided by NPR, Copyright NPR.