Interest Costs Surge, Crowding Out Federal Programs

The federal government’s interest payments on the national debt have reached unprecedented levels, consuming 19% of federal revenue in fiscal year 2025—a record high. According to the Committee for a Responsible Federal Budget (CRFB), this figure surpasses spending on Medicaid, national defense, and all non-defense discretionary programs combined. If current trends persist, interest costs could triple by 2036, consuming nearly 30% of federal revenue and threatening to destabilize fiscal policy.

A Spiral of Debt and Rising Rates

The CRFB warns that the mechanics behind these numbers could create a dangerous feedback loop. When the average interest rate on the national debt exceeds economic growth—a scenario known as r>g—debt can spiral out of control. Under elevated-rate projections, this gap could reach 75 basis points by 2036, making it increasingly difficult to rein in spending. Rising interest costs fuel higher debt, which in turn drives interest rates even higher, creating a compounding fiscal crisis.

‘With debt approaching record levels, there is little time to lose,’ CRFB writes.

Broader Economic Impacts

The consequences extend beyond federal budgets. Rising Treasury yields push up interest rates across the economy, increasing costs for mortgages, car loans, and business financing. A 55-basis-point increase in mortgage rates, for example, would add nearly $200 per month to a $500,000 mortgage, costing borrowers an additional $65,000 over the life of the loan. By 2027, interest costs are projected to surpass Medicare spending, becoming the second-largest government expenditure after Social Security.

Calls for Deficit Reduction

The CRFB emphasizes that deficit reduction is the most effective way to mitigate this crisis. Reducing deficits can ease inflationary pressures, lower long-term yields, and shrink the debt stock on which interest is paid. Lawmakers face mounting pressure to act swiftly to prevent high interest rates from crowding out other priorities and triggering a full-blown fiscal collapse.