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Fiscal Outlook

Any Way You Look at It, Interest Costs on the National Debt Will Soon Be at an All-Time High

Last Updated July 2, 2024

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The most recent projections from the Congressional Budget Office (CBO) confirm once again that America’s fiscal outlook is on an unsustainable path — increasingly driven by higher interest costs. Growing debt, in addition to the rise in interest rates over the past couple of years, has significantly increased the cost of federal borrowing. In 2023, interest costs on the national debt totaled $658 billion — surpassing most other components of the federal budget.

CBO projects that interest costs in 2024 will total $892 billion — a jump of 36 percent from the previous year and following increases of 35 and 38 percent in each of the two years before that. This year’s high interest bill isn’t a one-year phenomenon, it’s part of a trend that stretches out into the future, as debt continues to climb and relatively high interest rates push up the cost of federal borrowing. Over the next decade, the U.S. government’s interest payments on the national debt are now projected to total $12.9 trillion — the highest dollar amount for interest in any historical 10-year period and more than double the total spent in the past two decades. In fact, by pretty much any measurement, interest on the national debt will soon grow beyond its highest level since 1940, when such data were first collected:

  • Adjusting for inflation to 2023 dollars, net interest costs under CBO’s projections (which generally assume that current laws remain the same) would rise from $890 billion in 2024 to nearly $1.7 trillion in 2034. Outside of the past couple of years, the previous inflation-adjusted high was $468 billion in 1996.
  • Relative to the size of the economy, interest costs would reach 3.4 percent of gross domestic product (GDP) in 2025 — eclipsing the previous high set in 1991. Interest costs would climb to 4.1 percent of GDP by 2034.
  • As a share of federal revenues, federal interest payments would rise to 20.3 percent by 2025, exceeding the previous high of 18.4 percent set in 1991. They would continue climbing to 22.9 percent by 2034.
  • As a percent of total spending, interest costs would reach 15.8 percent by 2031, eclipsing the previous high of 15.4 percent set in 1996.
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Another way to contextualize the growth in interest costs: right now, the Treasury pays about $2.4 billion per day, on average, for interest. And unless we change course, that will rise to $4.7 billion per day in 2034.

Mounting interest costs put tremendous pressure on the federal budget, making it more difficult and costly to address pressing challenges and invest for the future. In fact, net interest costs will exceed outlays for all income security programs combined as well as defense discretionary spending this year. Interest payments will also exceed Medicare spending (net of offsetting receipts) through the next few years. According to CBO’s most recent long-term projections, net interest will become the largest “program”in the federal budget — surpassing Social Security in 2051. Rising interest costs also contribute to a vicious cycle of higher debt and additional interest costs.

Any number in the trillions can be hard to grasp. Here are some ways to consider what $12.9 trillion in interest means for America.

$12.9 trillion is:

  • Roughly $38,600 per person.
  • About twice what the government spent on net interest between 2000 and 2023.
  • About four times Social Security’s cumulative cash deficits in the next 10 years.
  • About twice the cost of the federal response to COVID-19.
  • Nearly five times the cost of the 376 U.S. weather and climate disasters that exceeded $1 billion since 1980 (adjusted for inflation).
  • About 20 times the need of America’s 20-year, $625 billion drinking water infrastructure.

By any measure, interest costs as part of the federal budget are at an all-time high, and trending even higher in the years ahead. Securing our nation’s fiscal and economic future will mean getting these interest costs under control, which will help relieve pressure within the budget, allow us to invest in more forward-looking priorities for our future, respond to emergencies, and help ensure a vibrant and inclusive economy for our nation.

 

Image credit: Kent Nishimura/Getty Images

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