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The Big Discretionary-Spending Squeeze


Over at Exchequer, Kevin rightfully points to the astonishing amount of interest that the federal government is projected to pay in FY 2023: $763 billion. That’s a lot of money (13.5 percent of the budget) and it is up from the $220 billion paid in FY 2012 and the $223 billion that is scheduled to be paid in FY 2013 and FY 2014 (check out table S-6 in the president’s budget.) He writes:

But let’s stay with that $763 billion a year for now. How much money is that? It is more money than the federal government spent on anything in 2011: The largest single spending item in 2011, Social Security, amounted to only $725 billion. Department of Defense spending was only (only!) $700 billion, and all nondefense discretionary spending combined amounted to only $646 billion. If you believe the welfare state is too expensive now, or that we spend too much money on the military, consider that President Obama proposes to spend more than that merely making interest payments on all the debt his budget would help pile up. How much debt? How about $8.5 trillion in new debt over the next decade, for a total of more than $25 trillion in national debt. At 6 percent interest, it would cost us $1.5 trillion a year to service that debt: about the size of President Clinton’s entire proposed budget for 1995.

Under Obama’s budget, in 2020 interest payments alone would amount to more than national-defense spending in that year. By 2023, interest payments alone would amount to more than all nondefense discretionary spending in that year.

But there is another number to look at in that budget. It’s the shrinking share of the budget consumed by discretionary spending (spending on things like defense and infrastructure) to make space for mandatory spending and interest. This is the Big Squeeze. In that same table (S-6), you see that that in FY 2014 mandatory spending plus interest will eat up 67 percent of the budget, leaving discretionary spending with 33 percent of the budget (down from 36 percent in FY 2012). Now by FY 2023, mandatory and interest spending will consume 77 percent of the total budget. Discretionary spending will be left with 23 percent of the budget. 

In other words, we won’t have to wait 20 or 40 years to feel the consequences of lawmakers’ unwillingness to tackle entitlement reforms. Ryan Streeter is right when he writes that ”the mathematics of entitlement neglect have caught up to us.” And unless we reform Medicare, Obamacare, Social Security, and Medicaid, it will be here to stay. 

Kevin’s piece is here and the budget tables are here

Incidentally, how do you think lawmakers will get along when the share of the money available for them to pay off interest groups (that’s effectively what discretionary spending is) is melting away?