Interest on the Debt
Interest is the cost of carrying past borrowing. It is not a policy choice but a mechanical result of the debt level and prevailing rates — and it has grown rapidly.
Net Interest (FY24)
$880B
Treasury / CBO
vs. FY22
+85%
From $475B
Share of Revenue
~17%
Interest as % of federal revenue
Trend
Net Interest Over Time
Net interest outlays by fiscal year. Source: CBO, Treasury.
Why It Matters
Two Levers, One Cost
Interest expense is the product of two things: the size of the debt and the interest rates applied to it. When the debt grows, more securities must be serviced. When rates rise, the cost of issuing and rolling over debt increases — even if the total balance is unchanged. The past few years have shown both levers moving in the same direction at once.
Because the Treasury issues securities across a range of maturities, rate changes do not hit the entire balance instantly; only maturing debt is refinanced at new rates. But the effect compounds steadily as older, lower-rate securities roll off and are replaced.
The Feedback Loop
Borrowing to Pay Interest
When interest exceeds the surplus available to pay it, the government effectively borrows to cover the cost — adding to the debt that generates future interest. This feedback loop is why rising interest is treated as one of the most consequential fiscal risks: it can turn a manageable trajectory into an accelerating one even without any new program spending.
References