The U.S. debt interest burden could soon eclipse defense spending

According to the U.S. Treasury Department’s latest data, 23 cents out of every dollar collected in federal tax revenue is being allocated toward interest payments on the nation’s growing debt. This marks a significant increase from previous years and reflects the combined impact of historically high interest rates and a rapidly expanding federal deficit. The figure highlights the mounting financial pressure on the U.S. budget, with interest expenses now ranking as the third-largest component of federal spending, following Social Security and healthcare programs.

The U.S. national debt currently exceeds $34 trillion, and the Federal Reserve’s aggressive rate hikes since 2022 have contributed to a sharp rise in borrowing costs. As a result, the government is now paying more in interest than ever before. Treasury Secretary Janet Yellen has previously warned that if current trends persist, interest on the debt could surpass defense spending within the next decade. This shift would have profound implications for fiscal policy, potentially limiting the government’s ability to invest in critical areas such as infrastructure, education, and scientific research.

The burden is expected to worsen in the coming years. According to the Congressional Budget Office (CBO), net interest payments on the federal debt are projected to rise from approximately $1.1 trillion in fiscal year 2024 to over $3 trillion by fiscal year 2034, assuming current interest rates remain unchanged. Analysts stress that these figures are sensitive to market conditions and could be affected by changes in inflation, economic growth, or new monetary policy decisions. The CBO also noted that if interest rates were to rise further, the increase in borrowing costs could push interest payments even higher than projected.

The increasing share of tax revenue directed toward debt servicing has reignited debates over fiscal sustainability and the long-term health of the U.S. economy. Critics argue that the growing interest burden could lead to higher taxes, deeper spending cuts, or a combination of both in the future. Proponents of deficit spending counter that the U.S. has historically been able to manage its debt due to the dollar’s role as the world’s primary reserve currency and strong investor confidence in U.S. Treasury securities.

Meanwhile, efforts to reduce the interest burden remain limited. While some lawmakers have proposed reforms aimed at improving fiscal discipline, including caps on spending and changes to entitlement programs, no comprehensive strategy has been widely adopted. The current trajectory, however, suggests that without substantial policy changes, the interest cost of the national debt will continue to rise as a share of federal revenue, posing a long-term challenge for economic planners and policymakers.

U.S. Treasury Department, Fiscal Data Portal

Congressional Budget Office, "The 2024 Long-Term Budget Outlook"

Congressional Budget Office, "Budget and Economic Outlook: 2024–2034"

Congressional Research Service, "Federal Debt: A Primer on the Debt Ceiling and the Debt Limit"