(The Center Square) Budget watchdogs are sounding the alarm as the U.S. hit an unfortunate fiscal milestone in fiscal year 2025: government spending on debt interest payments alone topped $1 trillion this year.
The federal government added roughly $1.8 trillion to the now $38 trillion national debt in fiscal year 2025. While net interest on the debt totaled $970 billion, according to the Congressional Budget Office, the federal government’s net interest payments exceeded $1 trillion for the first time.
That’s more than the U.S. spends on national defense, almost as much as it spends on Medicare, and about two-thirds of what it spends on Social Security benefits.
Chris Towner from the Committee for a Responsible Federal Budget said historically high interest payments – which are projected to rise to $1.8 trillion in 2035 – could cause a debt spiral in the future if Congress does not reign in spending.
“If we were to get into a situation where we have to keep borrowing, and then the people who loan us money get worried that we’re not going to pay it all back, we could see higher and higher interest rates – which means we have to borrow more to pay the interest on the debt, which means that the interest rates go higher, and that turns into what we call a debt spiral,” Towner told The Center Square.
“I hope we’re far away from that, but right now, we’re pretty close to the highest the debt that has ever been as a share of the economy, and that’s how economists think about it – the debt is equal to about 100% of the economy right now.”
The highest percentage the national debt has made up of Gross Domestic Product was 106%, and that was immediately following World War II. If it continues current borrowing rates, the U.S. will hit that level again within the next five years.
“We don’t really know what happens after that,” Towner said. “And what I fear is already starting to happen is that the higher debt we have, the slower the economy is growing. Every dollar that the federal government borrows results in about 33 cents less of investment in the economy from the private sector.”
The ripple effects of slowed economic growth are many, Towner added.
“Fewer buildings, fewer machines, being invested in fewer workers, being hired, all of that. And then what could happen, too, is interest rates could rise pretty significantly, because interest rates throughout the economy are really directly tied to how much it costs the government to borrow.”
Unlike other government spending, the $1 trillion spent on debt interest payments alone produces no benefits.
“So it’s a lot of money, and it’s basically something that we don’t get anything out of. It’s just to service our past borrowing,” Turner noted. “At least with Social Security, we’re sending that into people’s pocketbooks, or with Medicare, we’re mostly spending that on seniors’ medical bills. But we’re not getting anything for this interest. We’re just paying it because we borrowed so much.”
While there are ways Congress can address rampant spending while still protecting costly entitlement programs, Turner said, “there’s almost never going to be a politically painful overhaul.”
“We could actually pay for anything we wanted by raising taxes or just cutting any other spending,” Turner said, referencing ways to finance Democrats’ wish to extend the enhanced Obamacare Premium Tax Credits and Republicans’ desire to expand Health Savings Accounts.
“There are myriad ways to pay for the priorities we want to do. It’s just that whenever you cut spending or you raise revenue, you’re hurting someone’s pocketbook, so you’re going to get some disinterest in that.”
If lawmakers have no appetite to comb over entitlement programs for savings, there are still ways Congress can immediately address federal spending and lower both government borrowing and interest rates.
“We should be putting caps on discretionary spending,” Turner said. “But we also need to put together some sort of bipartisan fiscal commission that brings together Republicans and Democrats to talk about what are the right ways to make our finances sustainable, and what are the right ways to shore up Social Security and Medicare, which are both in danger of going insolvent in the next seven years. We need to act now to prevent that from happening.”
