Interest Expense

Substitution, mass confusion
Clouds inside your head
--The Cars

Federal government officials keep citing that annual interest expense amounts to about $400 billion. I would like to understand where this number is coming from.

The administration's own budget data (Table 3.1 here) estimates FY11 outlays for interest as $207 billion. That is broken down into 'on budget' at $315 billion and 'off budget' at -$116 billion. I presume the 'off budget' primarily relates to Social Security and the negative outlay (i.e., inflow) is from interest income on Treasuries tied to the 'theoretical' surplus in Social Security.

Focusing on the net number seems wholly appropriate as inflows are matched against outflows. If this is a bad assumption, then accounting for negative interest expense in outlays seems erroneous. It should more appropriately appear as an inflow.

Seemingly, net interest expense is half of what is being quoted and gross interest expense (i.e., on budget) is 2/3 of what is being quoted.