Contrary to the fantasies of certain Republicans in Washington—including President Trump—the current trajectory of the White House’s fiscal policy is toward ever larger deficits and ever more federal debt. In its most recent analysis of the so-called “big beautiful bill” the CBO estimates that the bill will add 2.4 trillion to the deficit over ten years. That’s not $2.4 trillion total. That’s 2.4 trillion extra. Moreover, this is essentially the best-case scenario because CBO analyses tend to assume away the existence of recessions—which increase deficits due to falling tax revenue—and they also take at face value a budget bill’s stated multi-year plans. In practice, any budget plan beyond two years is essentially meaningless since it is impossible to hold a future Congress to a current budget bill.
The more realistic outcome is that the proposed “cuts over ten years” in the current proposed bill will never be implemented, but the spending increases will. After all, the few tepid cuts that do appear in Trump’s bill are further neutralized by spending increases on the Pentagon.
Looking at what has happened so far this fiscal year, we see that the federal government is already on track for a two-trillion-plus deficit for this fiscal year. Next year’s deficit is likely to be at least as large.
In other words, by the time Trump leaves office, the total federal debt will be more than five trillion more than it is now, and be over 40 trillion dollars.
I know that numbers like this strike many people as very abstract and there are few ways to put 40 trillion dollars into perspective. But things come into focus a bit more when we look at how much the taxpayers are forced to pay on these huge deficits and debts each year.
Let’s try to break it down to size: during the 2024 fiscal year taxpayers were on the hook for $1.13 trillion in interest on the debt. That’s nearly $7,400 for each of the 153 million people who file tax returns. That’s an average, of course, and high earners will pay a lot more than low earners. Nonetheless, American taxpayers in general are paying hundreds of dollars per year—and some pay many thousands per year—just to keep the federal government from defaulting on its debt. In many cases that’s money paid out for past lost wars and countless welfare boondoggles demanded and supported by today’s senior citizens and by Americans long dead. The more the deficits and debt increase, the more tax revenue will be funneled into paying interest on government spending of the past.
Put another way, the cost of interest is like adding a second trillion-dollar Defense Department since interest payments now rival the total cost of us military spending each year.
Notably, as the Treasury Department showed in a May 31 report, the country is on track to pay another trillion dollars in interest for the 2025 fiscal year.
As a percentage of total government revenue, interest payments are headed back toward the highest level they’ve ever been—the years when the US had both high interest rates and large deficits in the 1980s.
Thanks to rising interest rates and soaring federal deficits, interest payments as a percent of total federal revenue skyrocketed in the wake of the huge deficits of the covid panic, rising from 13 percent in 2020 to 21 percent in 2024.
That’s not yet as high as what the US experienced during the early 1980s, but it’s important to note that the interest was being driven in that period primarily by very high interest rates and not by deficits. The national debt as a percentage of GDP in the mid 1980s was half of what it is today. In the mid 1980s, the federal debt was about double annual federal revenue. Today, it’s more than six times annual revenue. If interest rates today were to rise to early 1980s levels, most of the federal budget would go to interest alone.
So, there’s really no comparison between the 1980s situation and today, especially since interest rates on Treasurys today are well below what they were in the early 1980s, and are unlikely to go down significantly in the near future.
Meanwhile, the United States has in recent years outpaced other major developed economies to become the country with the largest debt-service burden. For example, when compared to Canda and major European economies, the US pays, by far, the largest amount of interest as a percentage of revenue. The trend in the US has been clearly upward since 2012, but surged well above peer countries after 2021. As of 2023, the US debt service amounts to 18 percent of total revenue.
The US is in a similar position when it comes to interest payments as a percentage of GDP. In this case, the US has only recently risen to the top, outpacing even the UK and Italy as of 2023. In that year, the US’s debt service amounted to 3.8 percent of GDP. Germany’s debt service, in contrast, amounts to only 0.9 percent of GDP.
Most concerning is not where the US fiscal situation is right now, but where it is headed. As the total cost of paying interest on its massive debt continues to spiral upward, there is virtually no political support at all for cutting spending or cutting deficits. With a combination of mounting debt, rising interest rates, and endless deficits, we can expect interest payments to further swallow up federal spending. Politicians like Donald Trump will only be all too happy to keep the gravy train flowing to the special interests.
An alternative to this scenario is the one in which the central bank intervenes to force down interest on Treasurys, thus lessening the upward surge in interest. This, however, requires the purchase of Treasurys with newly created money. In this scenario, the rising interest burden is replaced with the burden of price inflation. There is no pain-free solution.
Moreover, current projected budgets will further explode if the Trump administration succeeds in expanding US involvement in the current Israel-Iran war. This will potentially add hundreds of billions to deficits in coming years. The fact that the administration continues to press for further foreign intervention illustrates, perhaps better than anything else, that the Trump White House has never been serious about cutting federal spending and deficits.
