May 12, 2023
Programs that millions of Americans depend on and care about may be feeling a squeeze from interest costs on our high and rising national debt.
The Congressional Budget Office (CBO) projects that interest payments will total $663 billion in fiscal year 2023 and rise rapidly throughout the next decade — climbing from $745 billion in 2024 to $1.4 trillion in 2033. In total, net interest payments will total nearly $10.6 trillion over the next decade. Relative to the size of the economy, interest will rise from 2.7 percent of GDP in fiscal year 2024 to 3.7 percent in 2033. The previous high for interest relative to GDP in the post-World War II era was 3.2 percent in 1991 — that ratio would now be exceeded in 2029.
The federal government already spends more on interest than on budget areas such as veterans’ benefits, transportation, and education.
Then, over the next few years, spending on interest will surpass spending on major budget categories:
- In this fiscal year, spending on interest will become greater than mandatory spending for income security programs — a category that includes programs targeted to lower-income Americans such as the Supplemental Nutrition Assistance Program; earned income, child, and other tax credits; Supplemental Security Income; unemployment compensation; family support and foster care; and child nutrition.
- In fiscal year 2024, interest payments will surpass the combined amount that the federal government spends on major healthcare programs other than Medicare, which is comprised of Medicaid, the Children’s Health Insurance Program (CHIP), and premium tax credits and related spending.
- In fiscal year 2028, the federal government will spend more on interest than on defense.
- In fiscal year 2031, the federal government will spend more on interest than on non-defense discretionary, which includes funding for transportation, veterans, education, health, international affairs, natural resources and environment, general science and technology, general government, and more.
To make another comparison, in fiscal year 2024, the federal government will spend more on interest payments than the total portion of the federal budget allocated to children (based on 2022 data compiled by the Urban Institute). Over a longer period, interest will continue to outstrip other budget categories. CBO projects that interest will exceed the amount spent on Medicare in 2044 and Social Security in 2050, at which point it will be the largest expense in the federal budget.
Looking ahead, lawmakers should chart a more stable, sustainable path for the federal budget that would alleviate the growing interest burden and help ensure that there is room in the budget for national priorities.
Related: Interest Costs on the National Debt Set to Reach Historic Highs in the Next Decade
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As an economics and public policy enthusiast with a demonstrable understanding of fiscal matters, particularly related to the national debt and government spending, I can provide valuable insights into the article dated May 12, 2023. My expertise stems from extensive research, analysis of economic trends, and a keen interest in the intricate details of government finance.
The article revolves around the rising interest costs on the United States' national debt, projecting significant implications for various government programs. The evidence presented by the Congressional Budget Office (CBO) is both alarming and insightful. The CBO projects that interest payments will reach $663 billion in fiscal year 2023, escalating to a staggering $1.4 trillion in 2033. Over the next decade, net interest payments are estimated to total nearly $10.6 trillion.
To put these figures into perspective, the article highlights the proportion of interest payments relative to the size of the economy. Interest is anticipated to rise from 2.7 percent of GDP in fiscal year 2024 to 3.7 percent in 2033, surpassing the previous high observed in 1991. This ratio is set to exceed 3.2 percent in 2029, emphasizing the severity of the issue.
The impact of rising interest costs is illustrated by the fact that the federal government already spends more on interest than on critical budget areas such as veterans' benefits, transportation, and education. Furthermore, the article predicts that interest spending will surpass mandatory spending for income security programs, including vital initiatives for lower-income Americans like the Supplemental Nutrition Assistance Program and unemployment compensation.
The projection extends to future years, indicating that spending on interest will surpass major budget categories. By fiscal year 2028, interest payments are expected to exceed defense spending, and by 2031, they will surpass non-defense discretionary spending, covering areas such as transportation, veterans, education, health, and more.
The concerning trend doesn't stop there. The CBO projects that interest will eventually outpace spending on Medicare in 2044 and Social Security in 2050, making it the largest expense in the federal budget. This information underscores the urgency for lawmakers to address the growing interest burden and devise a more stable and sustainable path for the federal budget.
In conclusion, the evidence presented in the article paints a stark picture of the potential challenges posed by rising interest costs on the national debt. It emphasizes the need for proactive measures to ensure a stable fiscal future and preserve room in the budget for crucial national priorities.
