The Blubber

The Congressional Budget Office (CBO) now projects that the federal government will spend a staggering $13.8 trillion on net interest payments between Fiscal Year 2026 and 2035.

According to the latest estimates:

• Interest payments are expected to grow from $881 billion in FY 2024 to $1 trillion by FY 2026, eventually reaching nearly $1.8 trillion by 2035.
• Already, debt interest has overtaken spending on both Medicare and national defense, ranking second only to Social Security in terms of federal outlays.
• Interest costs have surged sharply in recent years, climbing from $223 billion in 2015 to $345 billion in 2020, and then nearly tripling to $881 billion in 2024.

By 2025, the CBO anticipates net interest will hit $952 billion, equating to 3.2% of GDP, just shy of an all-time high. By the following year, interest as a share of the economy is projected to break historical records.

In FY 2024, the U.S. government paid more to service its debt than it did on Medicare — the federal health insurance program for seniors and the disabled — or on the entire defense budget. Over the next 10 years, the government is projected to spend $4.3 trillion more on interest than on defense.

What’s Driving the Spike?

The increase in interest payments stems from two main factors:

1. Rising interest rates, driven by the Federal Reserve’s efforts to contain inflation.
2. Mounting debt levels, fueled by years of legislative spending and borrowing.

Unless the national debt stops expanding relative to the size of the economy, both interest payments and interest rates will likely continue their upward march.

Fiscal Outlook

To avoid further erosion of the federal balance sheet, policymakers must ensure that new spending initiatives are offset with credible savings or revenue measures. Broader fiscal reforms will also be needed to bring the debt under control and reduce interest costs over the long term.