February 7, 1997
Interest Payments Are Squeezing Other Priorities
As the Senate debates the Balanced Budget Constitutional Amendment (BBCA) and the President releases his 1998 budget, we should remember that deficits are purchased at the cost of other priorities and opportunities. When a debtor nation pledges to use its revenues for interest payments, it necessarily eliminates other options. Money spent on interest is not available for any other purpose.
$250 Billion Exclusively for Creditors
The President's budget says that in fiscal year 1998 the United States Government will pay an estimated $250 billion in net interest costs, which is 14.8 percent of the entire budget. That is $250 billion that will not be used for national defense, medical care, retirement security, research, education, housing, transportation, foreign aid, border control, law enforcement, training, technology, or anything else. In 1998 we are going to spend --
Taking $250 Billion Out of the Economy To Pay Interest
Where does the National Government get $250 billion to pay its interest costs? By adding together all corporate income taxes ($190 billion) and all Federal excise taxes ($61 billion). In short, it takes all of the income taxes paid by all of America's corporations plus all of the taxes on everything from beer and cigarettes to gasoline and telephone service to pay the interest on the Federal debt. There is no money left over for any other priority.
Changing Priorities Over the Years
A nation's budget is a sketch of those things it considers important. Naturally, as interest costs grow, other priorities are squeezed into the margins, as Table 1 shows:
Table 1.
Outlays for National Defense, Human Resources, Physical Resources, Other Functions,
and Net Interest as a Percentage of Total Federal Outlays,
| Year | National Defense | Human Resources | Physical Resources | Other Functions | Net Interest |
| 1940 | 17.5 | 43.7 | 24.4 | 8.2 | 9.5 |
| 1950 | 32.2 | 33.4 | 8.6 | 18.7 | 11.3 |
| 1960 | 52.2 | 28.4 | 8.7 | 8.4 | 7.5 |
| 1970 | 41.8 | 38.5 | 8.0 | 8.8 | 7.4 |
| 1980 | 22.7 | 53.0 | 11.2 | 7.6 | 8.9 |
| 1990 | 23.9 | 49.4 | 10.1 | 4.9 | 14.7 |
| 2000(est.) | 14.7 | 64.8 | 4.8 | 4.6 | 13.7 |
"Physical resources" outlays include those for energy; natural resources and environment; commerce and housing; transportation; and community development. As Table 1 shows, in the year 2000 we will be spending about three times more on interest payments than on all physical resources. In 1980, we spent considerably more on physical resources.
"Other functions" outlays include those for international affairs; science, space and technology; agriculture; administration of justice; and general government. As Table 1 shows, in the year 2000 we will be spending three times more on interest payments than on all "other functions" outlays. In 1970, we spent more on these other functions of government.
And, in the year 2000, we will be spending nearly as much on interest as on national defense, which will please our creditors and delight our adversaries.
Supporters of a Balanced Budget Constitutional Amendment are concerned about more than deficits and debts. They are concerned about our national priorities, as expressed in our national budgets, and interest costs are eating up many of our other priorities.
[Sources: The data in the written text are taken from Budget of the United States Government, Fiscal Year 1998, A Citizen's Guide to the Federal Budget, Tables 2-1, 2-2, and 2-3. The data in Table 1 are taken from Budget of the United States Government, Fiscal Year 1998, Historical Tables, Table 3.1. Budget numbers for FY 1998 and estimates for FY 2000 are, of course, based on OMB numbers; CBO has a less optimistic outlook. All references to "interest" are to "net interest".]