ode to EJ Anthony Graff (Apologies to Keats). Total interest payments have increased significantly and this presents a scary picture.
Figure 1: Federal interest payments, bn.$, SAAR (black). NBER defines recession dates as gray, from peak to trough. Source: FRED, BEA via NBER.
But perhaps it is useful to think about how the ability to pay has changed with economic output. Maybe we should look at federal interest payments as a percentage of GDP (blue line below).
Figure 2: Federal interest payments as a fraction of U.S. GDP (blue), Federal interest payments to the public as a fraction of U.S. GDP (brown). The interest payment to the public is calculated by multiplying the effective interest rate on Social Security debt by the debt not held by the public and subtracting it from the total federal payment. NBER defines recession dates as gray, from peak to trough. Source: BEA, NBER, Social Security Administration [1], [2].
And perhaps we should consider how much of those interest payments are being used to finance Social Security rather than being released to the public.
It’s still a scary picture. However, it is worth noting how much interest payments have increased as a share of GDP despite low interest rates during the Trump administration. We went back to GW Bush a few years before the pandemic. I would say it is time to increase tax revenues. Maybe we need an adjustment (rather than a sacrifice) to the Social Security system.
