U.S. Federal Interest Annual Expenditure Hits Record $1.2 Trillion
The U.S. Treasury's accounts show that interest expenditures on outstanding debt for the fiscal year 2026, as of August, have reached $1.27 trillion, with one month remaining, an increase of about 13% compared to the same period last year. The total interest for the fiscal year 2025 was already $1.2 trillion, and the year before that was about $1.13 trillion. Interest levels at the end of the 2010s were mostly between $400 billion and $570 billion: $414 billion in 2010, $402 billion in 2015, and $575 billion in 2019; the current level is about three times that of the early 2010s.
It is important to differentiate the metrics. The Treasury's "interest on outstanding debt" refers to gross interest paid to all holders; the Congressional Budget Office (CBO) tracks net interest, which deducts interest received by government accounts. The CBO reports that net interest for the first 11 months of fiscal year 2026 is $1.052 trillion, accounting for about half of the deficit during the same period; total net interest for the year has surpassed $1 trillion, with the 2027 baseline set at $1.108 trillion. The Bureau of Economic Analysis reports that annualized federal gross interest reached $1.506 trillion in the second quarter of 2026; the Federal Reserve's flow of funds report shows an annualized figure of about $1.247 trillion.
Interest has surpassed several major expenditures. In the first 11 months of fiscal year 2026, interest expenditures exceeded defense spending of about $876 billion and Medicare spending of about $979 billion, only lower than Social Security. Gross interest in national accounts has been consistently higher than defense spending since the first quarter of 2024, with annualized interest of $1.219 trillion in the first quarter of 2026 compared to $1.171 trillion for defense. The share of interest in federal revenue has risen to about 18.5%, surpassing the previous high of 18.4% in 1991; it has more than quadrupled compared to 2015.
The driving factors are the debt stock and refinancing rates, not monthly fluctuations. Publicly held debt has exceeded $32 trillion, accounting for over 100% of GDP, while total federal debt is approaching $40 trillion. The weighted average interest rate is about 3.49%. Bonds issued during the low-interest era are maturing and must be rolled over at higher coupon rates, and a decline in short-term rates can only partially offset long-term rates. In August, gross interest was $97.7 billion, lower than July's $117.6 billion; the Treasury stated that the main reason was the adjustment for inflation-protected securities, which does not change the upward trend for the year. The CBO projects that net interest will accumulate to $16.2 trillion over the next decade, rising to about $2.1 trillion by 2036.
The deficit for the first 11 months of fiscal year 2026 is about $1.97 trillion, spending about $1.41 for every dollar collected, with about 28.9% of expenditures financed by borrowing. The Joint Economic Committee's daily tracking shows that borrowing over the past 12 months has approached $2.95 trillion. Interest itself must also be borrowed, creating a "debt issued to pay interest" scenario.
The market mechanism is forced refinancing, not an option. The buyer is the Treasury, which must roll over maturing debt; the seller is the bond market, which requires a higher term premium to increase holdings. Beneficiaries are creditors holding short-term and floating-rate bonds who can keep up with interest rate hikes; those under pressure include defense, healthcare, and other budget categories squeezed by interest, as well as private borrowers who must absorb a larger supply of government bonds. The flow of funds is shifting from discretionary spending to debt service, with continued government bond supply, and long-term rates becoming a fiscal constraint in themselves.
Source: Public Information
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In the 2010s, the U.S. managed to keep interest payments between $400 billion and $500 billion due to zero interest rates after the financial crisis and the Federal Reserve keeping the term premium on government bonds low. The pandemic raised the debt level, and since 2022, policy interest rates have been increased, requiring old bonds to be sold at new prices upon maturity. When interest accounted for 18.4% of revenue in 1991, publicly held debt was only about 44% of GDP; now, the same ratio corresponds to over 100% of public debt. The same interest burden now has a leverage that has doubled, with a thinner fiscal buffer.
The capital path is a rolling machine. The Treasury exchanges new bonds for old ones daily, with coupon rates rising from near zero to just over 3% on a weighted average; internal interest in trust funds is merely a transfer from one hand to the other, while the net interest actually paid to the public has exceeded $1 trillion for over a year. Money has not been "reallocated" from defense to interest; rather, the deficit first piles up the principal, then turns interest payments into rigid expenditures. The ten-year forecast of $16.2 trillion in net interest means prepaying future tax revenues against money already borrowed.
Analogies must be grounded in specific phases. Italy and Japan have long maintained high debt with low interest rates, relying on domestic savings and central banks to suppress term premiums; the U.S. this time is leveraging after foreign holders remain and the central bank has contracted its balance sheet. In 2024, interest exceeding defense spending will become the norm for the first time since a brief crossover in 1998 after World War II. The industry position is not about expanding fiscal space but entering a phase where interest payments crowd out other expenditures: Social Security remains first, and interest has firmly taken the second spot.
Structural judgments belong to a reverse concentration within capital accumulation—the concentration of creditors' claims on the budget. The mechanism is the debt stock multiplied by refinancing rates: principal no longer declines, the maturity structure is biased towards the short term, and as long as rates do not return to zero, interest will generate new deficits by itself. Tax cuts, wars, and entitlements can all be debated, but the interest bill is issued monthly from the Treasury and does not accept a vote.
ABAB News · Cognitive Law
Debt piled up during low interest rates will explode at normal rates.
Interest does not queue; other expenditures must queue.
Issuing debt to pay interest is mortgaging future tax revenues.