U.S. Debt Crisis: U.S. Treasury Reveals Largest Federal Revenue Share on Debt Since 1990s

The US has spent the largest federal revenue share on debt since the early 1990s, with net interest payments reaching 18.7% of federal revenue in January. The federal debt has increased from $395B in 1924 to $35.46T in 2024, and the debt-to-GDP ratio surpassed 100% in 2013. The share of net interest costs as a percentage of federal revenues is projected to reach 34% by 2054, and the Debt to GDP Ratio of 123% indicates a looming repayment crisis.

The United States has been grappling with a significant increase in federal debt and net interest payments, which have reached concerning levels. According to data from the Peter G. Peterson Foundation (1), interest payments on the national debt have been the third-largest spending category for the federal government, surpassing outlays for Medicare, income security, and veterans' benefits and services.

The rapid accumulation of federal debt, combined with higher interest rates, has led to a substantial increase in the cost of borrowing for the federal government. Through the third month of FY2025, interest payments on the national debt have already exceeded defense spending, a trend that is expected to continue (1).

The Congressional Budget Office (CBO) projects that net interest payments will total $12.9 trillion over the next decade, rising from an annual cost of $1 trillion in 2025 to $1.7 trillion in 2034 (1). In dollar terms, interest costs have already reached all-time highs of $882 billion in 2024 and are projected to continue rising (1).

Relative to the size of the economy, interest costs would reach 3.4 percent of gross domestic product (GDP) in 2025, surpassing the previous high of 3.2 percent set in 1991 (1). As a share of federal revenues, federal interest payments are projected to rise to 4.1 percent by 2034 (1).

The growing burden of interest payments on the federal budget has significant implications for the economy. As the federal government devotes a larger portion of its budget to interest payments, it may crowd out opportunities for investment in other important priorities in both the public and private sectors.

Moreover, the increasing debt-to-GDP ratio, which surpassed 100 percent in 2013 (2), indicates a looming repayment crisis. The high level of debt relative to the size of the economy may lead to a loss of confidence in the US dollar and the US economy, potentially triggering a financial crisis.

In conclusion, the United States faces a significant challenge in managing its growing federal debt and interest payments. As interest payments continue to rise, the federal government will need to carefully balance its priorities and find ways to reduce its debt burden to avoid a potential financial crisis.

References:
[1] Peter G. Peterson Foundation. (2023). Monthly Interest Tracker: National Debt. Retrieved from https://www.pgpf.org/programs-and-projects/fiscal-policy/monthly-interest-tracker-national-debt/
[2] World Bank. (2023). United States - Government debt (gross). Retrieved from https://data.worldbank.org/indicator/GC.DOD.TOTL.GD.ZS?locations=US