U.S. Interest Payments Surpass Defense Spending, Highlighting Fiscal Challenges

Americans are aware of the impact of rising interest rates, which make it more expensive to carry credit card debt or purchase homes and automobiles. However, the federal government is also getting walloped: Spending on interest on US debt is currently the fastest increasing element of the budget, and it is expected to surpass national military spending this year.

According to a recent Congressional Budget Office report, federal interest payments are expected to reach $870 billion this year, surpassing the $822 billion spent on defense in 2024. This year’s interest payments total a 32% rise over the previous year’s $659 billion in interest expenditure.

To be clear, rising interest rates aren’t the only factor driving up the cost of servicing the nation’s debt. The US debt has nearly doubled over the last decade, reaching $33 trillion last year from $17 trillion in 2014, according to Treasury data.

Why interest payments have soared

Former President Donald Trump’s tax cuts in 2017 and increased federal aid during the outbreak have contributed to the country’s growing debt. Furthermore, while the Federal Reserve employs its most effective anti-inflationary instrument—higher interest rates—tthe United States is paying more for its expanding debt.

Some policy analysts believe that this is leading the United States into unknown territory. The issue, they argue, is that the country’s increasing debt and interest payments may eventually limit federal expenditure, making it difficult to maintain vital programs like Social Security or invest in initiatives that encourage economic growth, such as infrastructure or education.

“Interest is projected to be the second-largest federal program this year—it means your tax dollars are going to interest instead of everything else,” said Marc Goldwein, senior policy director at the Committee for a Responsible Government Budget, a bipartisan think tank.

He went on to say, “As far as I know, interest has never been greater than the defense budget.”

The United States’ interest payments on debt were 2.4% of GDP last year and are expected to rise to 3.9% by 2034, according to the CBO.


While that sounds awful, Bobby Kogan, senior director of federal budget policy at the Center for American Progress, points out that simply comparing expenditures on things like Social Security or defense to interest payments is incorrect.

For starters, interest payments are linked to finance approved spending, so the money reflects politicians’ earlier decisions to avoid tax increases or cut vital government programs.

“A lot of people think interest is a waste of money, which is not true,” Kogan told CBS MoneyWatch. “The decision to have interest payments happened because we decided not to do tax increases or spending cuts.”

Second, increasing interest spending does not necessarily imply program losses. “It’s not true that if interest is higher, it’s impossible to spend a dollar more on nutrition assistance,” he told reporters. “The idea that this interest is crowding out other government spending isn’t mechanically definitively true in any sense.”

$37,100 per person

Another important factor to note is that the nation’s budgetary picture has improved from the CBO’s projections a year ago. Senior Biden administration officials told CBS MoneyWatch that the U.S.’s recovery from the epidemic has led to stronger-than-expected economic growth.

For example, the government’s 2024 budget deficit will be $63 billion less than the CBO predicted nearly a year ago. Meanwhile, the federal deficit over the next decade is expected to be $1.4 trillion lower than the agency projected last year, according to a recent CBO study.

The Biden administration believes that raising taxes on the wealthy and corporations, as well as recouping billions through IRS audits, will increase revenue and fund important programs.Higher GDP growth is reducing the deficit, according to reports.

Biden officials warn that prolonging Trump-era tax cuts might worsen the nation’s debt and interest payments, adding $3.5 trillion to the deficit through 2033. The 2017 Tax Cuts and Jobs Act’s provisions, which primarily favored wealthy individuals and businesses, will expire at the end of 2025. However, some Republican lawmakers want to continue them.

According to the Peter G. Peterson Foundation, a think tank focused on decreasing federal debt, the federal government is expected to spend $12.4 trillion on interest over the next decade, the most in any previous 10-year period. According to the report, this amounts to almost $37,100 per person.

According to the foundation, in 2023, the United States would spend more on interest than on Medicaid, the low-income Americans’ health-care program. It is encouraging lawmakers to form a bipartisan fiscal panel to develop ideas for debt reduction, among other issues.

How the Fed figures into all this

Experts believe the nation’s rising debt and interest payments will play a factor in the 2024 presidential election. Republicans have pushed to blame the Biden administration for excessive pandemic spending, claiming that it drove up inflation. Economists attribute the price increase to a variety of variables, including supply-chain disruptions, labor shortages, geopolitical issues such as Russia’s war in Ukraine, and expenditure projects under both the Trump and Biden administrations.

The Fed’s subsequent interest-rate hikes have been unpleasant for families and small businesses, while also increasing the nation’s interest load, Republican members of the House Ways & Means Committee contend. In a December statement, Republican lawmakers blamed President Biden and Democrats’ inflationary spending spree for rising interest rates and the expense of servicing government debt.

The United States, like American consumers, may benefit from the Fed’s rate cuts, which are due later this year. However, Goldwein warned that the country might still be locked in a cycle of growing interest payments because the United States is on course to incur further debt.

“More debt leads to more interest, and that leads to more debt,” he went on to say.

The CBO predicts that debt and interest payments will continue to rise over the next decade, with federal spending set to increase by 64% to $10 trillion, up from $6.1 trillion in 2023. Much of that rise is attributable to obligatory spending programs such as Social Security and Medicare, whose costs are rising as the United States’ population ages.

To address the nation’s mounting debt load, Goldwein believes politicians on both sides of the aisle must focus on raising income through higher taxes while also lowering spending.

“It’s not realistic to deal with it on only one side,” he told reporters.

Leave a Reply