What Are Interest Costs On The National Debt?

In 2023, the federal government spent $658 billion on net interest costs on the national debt.

Interest costs are on track to become the largest category of spending in the federal budget - but what comprises the government's net outlays on interest, and what affects the size of such costs?

In the late 1970s, the increasing national debt and higher interest rates led to a boost in interest costs, which reached a historic high of 3.2 percent of GDP in 1991.

Due to the recent rise in interest rates, as well as the mounting public debt, interest payments have grown rapidly over the past two years, and they are projected to continue growing.

Net interest costs include the interest paid by the government minus the interest and investment income it receives.

For the most part, the interest category corresponds to interest paid on debt held by the public; while the government also issues debt to trust funds and other government accounts, interest payments to those entities are intragovernmental transactions and so have no net effect on the overall budget.

Gross interest outlays mostly reflect payments on debt held by the public as well as intragovernmental payments on debt held by government accounts, primarily the trust funds for Social Security and pensions for retired military and civilian federal workers.

The government's interest costs are mainly determined by the interest rates on U.S. Treasury securities and the amount of debt held by the public.

The size of the public debt also influences the government's net interest costs.

Rising interest rates and growing national debt cause federal interest costs to rise.

Interest costs, in turn, contribute to the growth of federal spending - continuing a vicious cycle of borrowing, interest, and higher debt. 

https://www.pgpf.org/budget-basics/what-are-interest-costs-on-the-national-debt