The Price of Short-Sightedness: Emergency Spending's $2 Trillion Interest Tab
Congress should reject the allure of costly, short-term budget thinking
Over the past 30 years, we estimate that emergency spending has generated almost $2 trillion in interest costs. Congress should reject the allure of costly, short-term budget thinking and offset new emergency spending.
Tonight, President Joe Biden will address the nation in his State of the Union speech, outlining his political priorities during this election year. One of the topics he’ll likely discuss is foreign aid for Ukraine—a hot-button issue for voters and a major sticking point in the latest round of budget negotiations. Some have framed the multi-billion-dollar package as a temporary and relatively low-cost investment.
As we pointed out last week, “one-time” or “low-cost” framing misses the bigger point. Even within a short 10-year budget window, a $95 billion foreign aid package adds $41 billion in additional interest costs. Decades of myopic budgeting have driven deficits and debt to record highs. America cannot afford to casually deficit spend anymore. Regardless of the foreign policy rationale for additional aid, offsetting new spending is the only fiscally responsible path forward.
The Present-day Cost of Repeated Emergency Spending
Prior emergency spending was almost entirely financed through deficit spending and incurred interest costs that have increased the debt burden. Using our emergency spending data set, we can generate a rough approximation of the interest costs generated from prior emergencies. For this calculation, we assume that all emergency spending added to the deficit and resulted in interest costs paid under a weighted average annual interest rate for all marketable Treasury securities of the relevant year.
In real dollars, the $12 trillion in emergency spending over the last 30 years generated almost $2 trillion of total interest costs to date (see here for our numbers). And that’s before considering future emergency spending that’s already on the books, including the more than $100 billion Congress plans on spending over the next few years under the Infrastructure Investment and Jobs Act, or any potential emergency spending that Congress tends to pass every year, such as disaster relief. The graph below shows historical emergency spending and associated interest costs.
Two trillion dollars is a massive cost to incur for “temporary” emergency spending. That’s roughly equivalent to the amount Congress has spent through the Department of Energy and Department of State combined over the last three decades. If Congress incorporated interest costs into legislative cost estimates, perhaps legislators would be less prone to spending so recklessly. As it stands, current and future taxpayers will continue to shoulder the burden of past fiscal decisions.
America’s fiscal position is deteriorating. In this year, net interest costs are expected to reach $870 billion, exceeding the annual defense budget. By 2028, public debt will surpass the World War II record high of 106 percent of GDP. Debt continues to climb rapidly and unsustainably thereafter. Excessive public debt slows economic growth and reduces Americans’ incomes by crowding out private investment and increasing interest rates. Appropriators would be wise to avoid abusing emergency spending and start taking fiscal tradeoff considerations seriously.
Drawing a Line in the Sand
Legislators today can benefit from hindsight. The extravagant pandemic spending spree is in the rearview mirror. Over 30 years, $12 trillion in emergency spending has boosted debt levels to new heights and has already generated roughly $2 trillion in additional interest costs. The long-term fiscal costs of myopic emergency budgeting demonstrate why legislators should offset new emergency spending today, either immediately or in the near-term future.
Offsetting new spending is a commonsense, realistic ask. If Biden’s foreign policy priorities really deserve new funding, Congress can scrounge up the funds from elsewhere. Some deficit-reducing proposals include reducing subsidies to states and localities, cutting wasteful agriculture spending, or reviewing expired authorizations for potential savings. Without offsets, emergency spending will further worsen the already dire fiscal outlook. It’s time Congress and the Executive start budgeting responsibly.
