According to the U.S. Treasury Department, in the first 10 months of fiscal year 2026 ending July 31, the U.S. federal government paid $763 billion in interest on national debt, an 18% increase year-on-year, surpassing defense spending of $728 billion during the same period, making it one of the fastest-growing major expenditure items in the federal budget.

During the same period, the overall fiscal situation of the U.S. federal government was also under pressure: total revenue for the first 10 months was approximately $4.5 trillion, total expenditure was about $6.3 trillion, and the fiscal deficit reached $1.8 trillion, exceeding the entire borrowing scale for fiscal year 2025; in July alone, the federal deficit was as high as $432 billion, with expenditures of $766 billion and revenues of only $334 billion.

As of the end of July, the amount of national debt held by the public had reached $32 trillion, an increase of $2.5 trillion compared to the same period last year, with the total borrowing scale for the year expected to exceed $2 trillion; the overall debt of the U.S. government is nearing the $40 trillion mark.

This is not the first time interest on national debt has exceeded defense spending—previous data from the Congressional Budget Office (CBO) and several financial research institutions indicated that as early as 2024, U.S. national debt interest payments historically surpassed the defense budget, and since then, interest payments have consistently remained among the top expenditure items in the federal budget, second only to mandatory expenditures like Social Security and Medicare.

From a long-term trend perspective, U.S. national debt interest payments have reached their highest level since World War II: measured as a percentage of GDP, interest payments are expected to account for about 3.2% of GDP in 2026, exceeding the historical record set in 1991; measured as a percentage of federal fiscal revenue, by the end of 2025, interest payments will account for 18.5% of total federal revenue, also surpassing the historical high of 1991.

From a funding mechanism perspective, the rapid rise in interest payments is primarily driven by the "expansion of existing debt" and the "increase in refinancing rates": in recent years, the Federal Reserve's significant interest rate hikes have forced the U.S. Treasury to reissue maturing national debt at rates far higher than pre-pandemic levels, and even though recent policy rates have slightly decreased, the average financing cost of existing debt is gradually aligning with new issuance rates; the main "recipients" of these interest payments are domestic and foreign investors holding U.S. national debt (including central banks of various countries, pension funds, insurance companies, and individual investors), meaning that an increasingly large portion of the federal budget is being transferred from taxpayers and other fiscal priority projects to debt holders.

Supplementary data: The Congressional Budget Office projects that over the next decade, the total net interest expenditure of the U.S. federal government will reach $16.2 trillion, with annual interest payments rising from about $1 trillion in 2026 to about $2.1 trillion in 2036, at which point interest payments will account for 4.6% of GDP and 25.8% of federal revenue.

Source: Public Information