What Is the National Debt Costing Us?
Last Updated August 6, 2024
Programs that millions of Americans depend on and care about may be feeling a squeeze from interest costs on our high and rising national debt.
The Congressional Budget Office (CBO) projects that interest payments will total $892 billion in fiscal year 2024 and rise rapidly throughout the next decade — climbing from $1 trillion in 2025 to $1.7 trillion in 2034. In total, net interest payments will total $12.9 trillion over the next decade. Relative to the size of the economy, interest will rise from 3.4 percent of gross domestic product (GDP) in fiscal year 2025 to 4.1 percent in 2034. The previous high for interest relative to GDP in the post-World War II era was 3.2 percent in 1991 — that ratio would now be exceeded in 2025.
The federal government already spends more on interest than on budget areas such as:
- Medicaid
- Federal spending on children
- Income security programs, which include programs targeted to lower-income Americans such as the Supplemental Nutrition Assistance Program; earned income, child, and other tax credits
- Veterans’ benefits
What is more, spending on interest will surpass federal outlays on major budget categories over the next few years:
- In fiscal year 2024, the federal government will spend more on interest than on defense as well as non-defense discretionary, which includes funding for transportation, veterans, education, health, international affairs, natural resources and environment, general science and technology, general government, and more.
- In fiscal years 2024 through 2027, interest payments will exceed the amount that the federal government spends on Medicare (net of offsetting receipts). However, that relationship will generally reverse for the rest of the 10-year period.
Furthermore, interest will continue to outstrip other budget categories. According to its latest long-term projections, CBO projects that interest will become the largest category in the federal budget in 2051 — exceeding the amount spent on Social Security that year.
Looking ahead, lawmakers should chart a more stable, sustainable path for the federal budget that would alleviate the growing interest burden and help ensure that there is room in the budget for national priorities.
Image credit: Photo by Getty Images
Further Reading
International Monetary Fund Warns: Now Is the Time to Reduce Debt Burdens
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The U.S. Nearly Had a $2 Trillion Deficit Again
Despite a healthy economy driving revenues higher, the underlying deficit nearly reached $2 trillion for the second year in a row.
What Is R Versus G and Why Does It Matter for the National Debt?
The combination of higher debt levels and elevated interest rates have increased the cost of federal borrowing, prompting economists to consider the sustainability of our fiscal trajectory.