• Large Future Deficits
• Demographics
• Future Costs
• Macroeconomic Problems
• Slow Economic Growth
• Generational Accounting
• Increased Interest on Debt
• Capital Flight
• Economic Solutions
• Social Security
• Medicare
• Discretionary Spending
• Taxes
• Political Limitations
• Ideological Difference
• Partisan Politics
• Public Awareness
• Deficit Politics
• Entitlement Spending
• Policy Recommendations
• Complete Recommendation


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Increasing interest on the Debt

When a government runs deficits for an extended period of time, government debt accumulates. If this debt grows faster than GDP, a larger proportion of government revenue will have to go to pay the interest on the debt, creating a shortage of money to spend on needed government programs. To the extent that other government outlays are not cut back, growing debt interest payments just exacerbate the deficit problem.  Today, as shown in the pie chart below[i], 7% of federal spending goes to pay interest on the debt.

As this piece of the pie increases, other sections such as entitlements, defense, or discretionary spending will be squeezed out.   The conclusion is that as interest on the debt accumulates, the growing deficits will become unsustainable. This will eventually lead to a combination of higher taxes and/or reduced benefits. The sooner unsustainable deficits are controlled the less hardship is in store for the future.