US federal debt is near its World War II record, roughly $235,000 per household, and interest payments are on track to overtake defence spending.
Some people's pulse races when their team wins. Others' races when they open the budget tables. Jessica Riedl of the Brookings Institution has written a book for the second group.
How the money was borrowed
US federal debt as a share of GDP is close to its level just after World War II. Per household, that is about $235,000.
The 2008 financial crisis and the 2020 pandemic were both financed with borrowed money. Even with no more wars, recessions or pandemics, tax cuts expiring on schedule and no further rate rises, the path still runs downward.
In 2000 the US actually ran surpluses for a few years. Three things changed: tax cuts, rising Social Security and Medicare spending, and rising interest payments.
Where the money goes
Many people assume defence dominates federal spending. When Eisenhower warned of the military-industrial complex in 1961, defence was about half of it; Social Security, Medicare and anti-poverty programmes were about 16%.
Those two have now swapped places: Social Security, Medicare and anti-poverty programmes are 53% of federal spending, defence about 13%.
The trap with debt is compounding: interest climbs so high you cannot cut current borrowing and simply roll the old debt over. By 2036, about 30% of federal revenue goes to interest on past borrowing, more than Social Security costs.
Cutting is not the only answer
Riedl argues that fixing the long-term funding gap in Social Security and Medicare would go a long way. US politicians have dodged the topic for decades.
She is lukewarm on tax rises, though this author thinks returning to 2000s tax levels is reasonable.
One thing often missed: Europe's more generous welfare states are not funded by taxing high incomes far harder than the US. They are funded by value-added tax, a national sales tax, and higher payroll taxes. They tax the middle class to give the middle class more.
Why it matters
Debt is not the news. The news is the moment interest payments replace defence as the second-largest expense: after that, every government trimming a budget has to feed its creditors first and argue about the rest later.
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