Anyone who has borrowed money; house, car, card, etc. knows that you can quickly get into big trouble if your payment is less than the interest charges each period. Right? Paying interest on interest can be bad.
It can be bad for governments, too.
In fiscal year 2012, the US government's interest bill was $360 billion. It will be larger this year. In the last five months since the US Goverment fiscal year began, according to the US Treasury website , we've racked up $170 billion in interest.
To avoid future troubles and to successfully lower the National Debt, the minimum US deficit reduction each year should at least be equal to what we pay for interest. The longer we wait, the worse the situation will become. The Simpson-Bowes Commission understood this, the Republican Senator from Oklahoma, Tom Coburn understands this, and and our President understands this. That's why he endeaveres to achieve the 'grand bargain,' a deficit reduction that's larger than the yearly interest. The President proposes doing it with a mixture of expense reductions and taxes increases for the wealthy, similar to the bipartisan deficit reduction commission recommendations. He has been spectacularly unsuccessful.
Thus far, the efforts by the president have been stymied by the House Republicans. They refuse his approach without compromise. The House's counter-proposals are meager compared to the interest payment. Their proposed reductions sound grand until you realize they are quoted for a ten-year period rather than just one. The Ryan Deficit Reduction Plan is the latest House Republican proposal. This plan is mostly a raid on the Social Security and Medicare funds which are held separate from the government revenue stream and are funded by the payroll tax. Social Security and Medicare funds are solvent and will continue solvency for at least the next ten years unless the House Republicans are successful. According to Congressional Budget Office, the Ryan Deficit Reduction Plan will actually raise the National Debt by trillions over its lifetime. The Republican argue that a large National Debt can be offset by growing the economy. That argument fails when the National Debt is growing faster than the economy as it is doing now.
The the much-hyped 'fiscal cliff/sequester' only reduces the deficit by $128 billion ($85 billion reduction in government expenses + $43 billion in tax increases for the ultra-wealthy). To reach the goal of just paying the interest, we need at least $300 billion more in deficit reduction for this year. Most economists say that cutting government expenses is too austere for our fragile economy and anyway politically it just isn't going to happen. Judging from their paltry porposals, it is apparent not even the House Republicans can agree on that sharp of a cut. The President's plan to combine more expense cuts with some new revenue acquired by increasing taxes and removing tax loopholes for the ultra-wealthy is a good approach. New revenue from the ultra-rich is reasonable. The more one profits from commerce, the more one depends on and uses the US government's infrastructure and services. Also, it appears that many of them made huge amounts of money during the recent recession. It seems only fair that they should pay more now.
I can remember years ago, in the Vietnam War era, the Federal Government instituted a temporary 'tax surcharge' on wealthy Americans. Maybe that's what we need right now, a tax on the ultra-wealthy that would expire when the National Debt is paid.
Most of the National Debt accrued during our working lifetime. We're doing nothing to retire it. Do we continue that do-nothing path to leave our debt for future generations or do we act responsibly?