The interest on the national debt, which increased 9.3 percent from fiscal 1985 to 1986, is one of the fastest growing parts of the federal budget and the only item that cannot be frozen or cut.
According to the government's new budget estimates, net interest has increased from about 7 percent of the federal budget 30 years ago to an estimated 14.6 percent next year.
It is growing faster than Social Security and Medicare, which would increase 4.7 percent in 1986 under the budget President Reagan will present to Congress today, but not quite as fast as the Defense Department, whose budget outlays would grow 12.5 percent this year. Interest has increased from $5.1 billion in 1956 to an estimated $142.5 billion in 1986.
Despite administration efforts to reduce the deficit by $51 billion next year, net interest would add $15 billion to the budget, nearly one-third of the proposed reduction in spending.
Net interest is the federal government's cost of borrowing to pay the federal deficit, plus its income from lending money.
The rapidly rising debt is almost impossible to cut; it is the most uncontrollable of the "uncontrollable" parts of the budget, such as unemployment compensation, Social Security and pension benefits.
Figures to be released this week by the Congressional Budget Office will show larger budget deficits through the end of the decade than those estimated by the administration, partly because the CBO projects larger interest payments.
Interest on the public debt, by far the largest component of interest, is determined by interest rates and the size of the debt. Despite the government's projected decline in interest rates, interest on the public debt would grow by $26.5 billion in fiscal 1985 and $18.5 billion in 1986 because the debt itself keeps growing, according to the budget.
Thirty years ago, debt held by the public was $222 billion. It is expected to be $1.7 trillion in 1986 and jump to $2.2 trillion by 1990.
"The interest on the debt held by the public has risen much faster than the debt itself, due to a strong upward trend since World War II in the interest rates that must be paid on new borrowing and on" refinancing maturing debt, the budget said.
For example, the interest rate on three-month Treasury bills averaged 2 percent in the 1950s, 4 percent in the 1960s and 6.3 percent in the 1970s. From 1980 to 1982, interest rates soared, causing the government to pay 12.1 interest on its short-term securities. The rate dropped to 8.6 percent in 1983 and 9.6 percent in 1984.
" . . . Whereas the federal debt held by the public increased by six times between 1954 and 1984 . . . interest paid on this debt increased by 21 times," the budget said.
The administration has attempted to reduce future interest costs by selling special-targeted securities overseas in an effort to get lower interest rates.
The CBO figures show interest rising by increasingly greater amounts than the administration's forecast, in large part because of a difference in interest-rate assumptions. Under the CBO current services baseline -- the budget without changes in policy -- interest would be $130 billion in fiscal 1985, $146 billion in 1986 and $231 billion in 1990. Under the administration's current services baseline, interest would be $130.5 billion in 1985, $145.8 billion in 1986 and $164.2 billion by 1990.
The administration forecast interest paid on three-month Treasury bills to average 7.9 percent in 1986 and 5 percent by 1990. Current CBO assumptions of interest rates were not available. However, in its budget update in August, the CBO projected interest on three-month T-bills would average 8.9 percent for 1987 through 1989.
According to the 1986 budget, a sustained 1 percentage-point increase in interest rates beginning last month would raise net interest costs by $8.2 billion in 1986, growing to $17.8 billion in 1990. If federal borrowing increased $100 billion beginning in 1986, interest costs would rise an additional $5.8 billion in 1986, growing to $8.8 billion in 1990, according to the administration's budget figures. 1986, growing to $17.8 billion in 1990. If federal borrowing increased $100 billion beginning in 1986, interest costs would rise an additional $5.8 billion in 1986, growing to $8.8 billion in 1990, according to the administration's budget figures.