With rising interest rates and mounting debt, the taxpayers’ bill is finally due

This period of economic expansion, fueled by trillions of federal dollars spent to avert a Covid-induced financial crisis, has created millions of jobs. But it has also led to massive inflation.

The bill is approaching now. The aftershocks of this moment will cost the government—that is, the taxpayers—huge in the form of higher interest. How much more? Total interest payments on the national debt could reach nearly $580 billion this fiscal year, up from $399 billion in the recently concluded fiscal year 2022.

That would bring total interest costs in 2023 to roughly the same level as the federal government’s 2022 budget for Medicaid.

The increase is caused in part by the US government’s rapidly increasing national debt, as well as by the Federal Reserve’s sharp increase in interest rates to contain inflation. The government is more than $31 trillion in debt and had a $1.4 trillion deficit in fiscal 2022 (a number that represents the gap between spending and revenue).

These high interest rates in the current fiscal year are just the beginning. This cost will continue to rise rapidly, increasing the burden on future generations.

The Congressional Budget Office projections, released in May, projected a $43 billion increase in interest costs for fiscal year 2023 compared to 2022. Fiscal year 2023 began on October 1.

But after adjusting for the sharply higher interest rates the Federal Reserve has imposed since May — and assuming the Fed keeps its word and imposes additional hikes later this year — the interest cost numbers are staggering.

With the help of Marc Goldstein, the senior policy director of the Committee for a Responsible Federal Budget, I used a workbook function on the CBO website to calculate the additional cost of higher interest rates than CBO projected in May.

The 30-day Treasury rate this week was more than 2.5 percent higher than on May 2, the one-year rate was more than 2 percent higher and the 10-year rate was nearly 1 percent higher. And the Fed says higher rates are coming later this year.

Assume Treasury borrowing costs will be 1.5 percent above CBO’s projections for this fiscal year as well as for the next nine years.

For this year, projected higher interest costs could reach about $137 billion.

The interest numbers keep growing and growing. For fiscal 2024, we’re looking at $719 billion in interest costs if you include my estimate of $194 billion in higher interest rates.

The Fed, admittedly a late starter in the fight against inflation, is now doing its job as best it can and trying to dampen price increases with higher interest rates. Higher interest costs for the Treasury are collateral damage.

As for the CBO, it couldn’t have known in May that the Fed would raise rates so quickly. Unlike a stock trader, the CBO isn’t in the business of tweaking its math every time the financial markets hiccup, and it hasn’t updated the May numbers. But when the next update comes around, which usually happens in January, the interest numbers may well be high enough to knock your socks off.

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