Politicians, political pundits and economists all like to say that the United States federal debt could be paid off if taxes were raised slightly and spending was tightened slightly. The people above make it sound as if paying off the debt would be easy. However, this is not the case. A little simple math makes it abundantly clear that the debt will very, very, very costly to repay
Let us assume that The United States government makes debt a priority and runs a 100 billion dollar surplus that will be payed directly to the debt. $100,000,000,000 is not out of the realm of possibility, it has actually been done relatively recently. However, even if the United States re-payed 100 billion per year it would take 181.5 years to pay off the debt. In the last 60 years there has been a budget surplus of 100 billion, or more, 4 times, 1998-2001. To assume that the federal government has the discipline to run 181.5 years of a slight government surplus is ridiculous. Since 1940, 4 years of surplus is the longest yearly streak they have had. The new streak would have to be 45 times longer. It is laughable to expect a government to achieve this streak while there is no historical data that it can do so. The above was simple math. Hold onto your hats because it’s about to get more complicated.
The worst part about debt is the interest. The simple calculations above did not take interest payments into account, so let’s do that now. The US debt of approximately 18 trillion 150 billion, and always rising, dollars turned out to have interest payment of roughly 431 billion dollars in 2014. 431 billion dollars of the federal governments budget last year went to paying down debt interest. The higher this number the more difficult it will be for the government to reach surplus. Also, as you can see from this chart interest rates are sitting at historical lows. When the interest rate begins to rise the government will have to spend more and more on interest payments. With more money being allocated to the interest it will become increasingly difficult to reach a government surplus. The average interest rate on the chart linked above is 5.1%. If interest rates were to rise to 5.1% the interest payments on the current debt would more than double. At a historically average interest rate of 5.1% the government payments, just on interest, would be 909 billion dollars per year. That would make interest payments the second largest item in our budget, a mere 16 billion behind Medicare and Medicaid. The worst part about interest is that it provides no value. Medicare/Medicaid provide healthcare for the elderly and poor. Interest payments provide zero value to the American people, unless of course the interest is being payed to them. In fact, much of the interest payment goes to our competitors abroad.
The relatively simple math above proves the politicians wrong. It would be incredibly difficult to pay the debt down. Not only would it be difficult now, but it will get harder in the future as well. Rising interest rates will make it more difficult to reach a surplus. Without a surplus the debt can not be decreased. When the debt can not be decreased the interest continues to accumulate making it harder and harder to pay down the debt. When all these factors are taken into account it is clear that the federal government would have to run the most fiscally responsible system that it has in decades, while also doing so for years on end, to make progress on re-paying the debt. That is not an easy task.
*All numbers adjusted for inflation.
Sources:
2. http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm
3. http://www.davemanuel.com/history-of-deficits-and-surpluses-in-the-united-states.php
4. http://en.wikipedia.org/wiki/National_debt_of_the_United_States#Interest_Paid
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