Interest on the national debt is eating 19% of federal revenue - watchdog warns it will get worse

Key Points:

• In fiscal year 2025, interest costs on the U.S. national debt reached a record 3.25% of GDP and accounted for about 19% of all federal revenue, with projections indicating these costs could nearly triple by 2036 if Treasury yields stay elevated.
• The Committee for a Responsible Federal Budget warns that when interest rates on debt exceed economic growth rates (r > g), it can trigger a debt spiral where rising interest costs and debt levels reinforce each other, making fiscal stabilization increasingly difficult.
• Recent increases in Treasury yields, driven by geopolitical tensions and inflation concerns, have pushed the 30-year Treasury yield to over 5%, with investors anticipating it could surpass 6% within the year, signaling uncertainty in bond markets.
• Higher Treasury yields translate into increased borrowing costs across the economy, significantly raising monthly mortgage payments and lifetime costs for homebuyers, with a 55-basis-point rise adding nearly $200 per month on a $500,000 mortgage.
• CRFB urges lawmakers to prioritize deficit reduction to lower interest rates, reduce inflationary pressures, and prevent interest costs from crowding out other government spending, emphasizing the urgency given the current high debt levels.