US debt interest bill tops Medicare as Treasury pays nearly $3 billion a day to service borrowing
The U.S. government is spending nearly $3 billion every day just to service its national debt, underscoring the mounting fiscal pressures facing Washington as federal borrowing approaches $39 trillion. New data from the Congressional Budget Office (CBO) shows that while the federal deficit has improved modestly compared with a year ago, rising interest costs continue to consume a growing share of government resources.
The Treasury has paid $628 billion in net interest during the first seven months of fiscal year 2026, making debt servicing more expensive than major federal programs such as Medicare and Medicaid. At the same time, economists and budget experts are warning that higher interest rates, weaker demand for long-term Treasury bonds, and rising debt levels could eventually test the limits of fiscal sustainability.
According to the CBO’s latest monthly budget update, the federal government paid $628 billion in net interest between October and April.
Spread across the 212 days of the fiscal year covered by the report, those payments average approximately $2.96 billion per day. The figure highlights the growing burden of financing the national debt as borrowing costs remain elevated.
Interest expenses have become one of the government’s largest spending categories, exceeding both Medicare and Medicaid outlays during the same period.
The CBO noted that rising debt levels and higher long-term interest rates contributed to the increase in borrowing costs.
“Outlays for net interest on the public debt rose by $41 billion (or 7%) because the debt was larger than it was in the first seven months of fiscal year 2025 and because of higher long-term interest rates. Declines in short-term interest rates partially mitigated the overall rise in interest payments.”
Social Security remains the largest federal expenditure
While interest costs continue to climb, Social Security remains the federal government’s largest spending category.
The CBO reported that Social Security benefits totaled $953 billion during the first seven months of fiscal year 2026. Medicare spending reached $588 billion, while Medicaid expenditures totaled $409 billion.
The fact that interest payments now exceed both Medicare and Medicaid spending illustrates how debt servicing is consuming a growing share of federal resources that might otherwise be directed toward public programs and investments.
Federal deficit improves despite higher spending
The latest budget figures show a modest improvement in the federal deficit compared with the same period last year.
Federal revenue totaled $3.3 trillion between October and April, up from $3.1 trillion during the corresponding period of fiscal year 2025. Government spending also increased, rising from $4.2 trillion to $4.3 trillion.
As a result, the fiscal year 2026 deficit stands at $955 billion so far, approximately $94 billion lower than the deficit recorded during the same period a year earlier.
The improvement suggests that revenue growth has outpaced spending increases, though the overall budget remains deeply in deficit.
Tariff revenues provide an unexpected boost
One of the largest contributors to the increase in federal revenue has been customs duties collected under President Donald Trump’s tariff policies.
According to the CBO data, customs duty collections surged from $59 billion during the first seven months of fiscal year 2025 to $190 billion during the same period in fiscal year 2026. That represents a 220% increase year over year.
The sharp rise reflects the expansion of tariffs on imported goods and has provided a significant new source of federal revenue.
Some economists argue that the revenue generated by tariffs could make them politically difficult to reverse regardless of future election outcomes.
Wharton School professor Joao Gomes previously suggested that the fiscal benefits may outlast the political debate surrounding the policy.
“The truth is governments need revenues and once you see the amount of revenue the tariffs bring, I think Democrats will be addicted to them as Republicans—or are as likely to be.”
Rising debt is increasing pressure on future budgets
Although the deficit has improved slightly this year, long-term projections remain challenging.
As debt levels grow, the government must devote increasing amounts of revenue toward interest payments. This leaves less flexibility to respond to economic downturns, national emergencies, or future spending priorities.
Budget analysts have increasingly focused on the possibility that debt servicing costs could become one of the fastest-growing components of federal spending over the next decade.
Those concerns have intensified as interest rates remain above the levels that prevailed during much of the previous decade.
The Committee for a Responsible Federal Budget recently estimated that if interest rates remain roughly 55 basis points above Congressional Budget Office projections, federal debt could increase by an additional $2 trillion over the next decade.
Under that scenario, annual interest costs would climb from approximately $970 billion in 2025 to $2.5 trillion by 2036.
Interest payments would also consume a larger share of federal revenue, rising from 19% in 2025 to roughly 30% by 2036.
These projections illustrate how even relatively small changes in interest rates can have major implications for federal finances due to the enormous size of the existing debt stock.
Federal Reserve policy has become increasingly important
Analysts say the Federal Reserve’s decisions on interest rates could have significant implications for the government’s borrowing costs.
If inflation remains elevated and policymakers determine that higher rates are necessary, the resulting increase in Treasury yields could further raise debt servicing expenses.
Bank of America recently highlighted the growing sensitivity of long-term Treasury markets to fiscal conditions.
“In an environment where Fed could potentially be on the table and become a driver of even larger fiscal deficits amid rising debt servicing costs, the long end of the curve becomes more sensitive to what should be primarily a move in short-end rates.”
At the same time, markets continue to closely monitor whether the Federal Reserve maintains its independence from political pressure while pursuing its inflation objectives.
Recent Treasury bond auctions have raised concerns among market participants about investor appetite for government debt.
Earlier this month, the Treasury sold $25 billion of 30-year bonds at a yield of 5%, marking the first time since 2007 that a 30-year Treasury carried such a high interest rate.
Demand for several recent Treasury offerings, including three-year, 10-year, and 30-year securities, came in weaker than expected. Similar patterns emerged during auctions held earlier in the year.
When investor demand weakens, the government must offer higher yields to attract buyers, increasing borrowing costs and potentially creating additional fiscal pressures.
Economists are debating where debt becomes unsustainable
While economists broadly agree that debt levels are rising rapidly, there is less agreement on when borrowing might become unsustainable.
A recent analysis from the Penn Wharton Budget Model suggested that federal debt could approach a critical threshold at roughly 210% of gross domestic product.
According to the report, debt levels above that point could create conditions in which even large tax increases would struggle to generate sufficient revenue to cover growing interest obligations.
The model describes this threshold as an “outer bound” where default on Treasury obligations or government transfer commitments could become increasingly likely in inflation-adjusted terms.
Currently, the debt-to-GDP ratio stands near 100%, while CBO projections forecast it reaching approximately 175% by 2056.
Healthcare costs and demographics could accelerate the timeline
The timing of any future fiscal crisis depends heavily on economic growth, healthcare spending, and demographic trends.
The Penn Wharton Budget Model estimates that the United States could reach its debt limit in roughly 19 to 25 years under various growth scenarios.
Healthcare spending plays a particularly important role because rising Medicare costs could significantly increase future deficits.
The report also warned that sustained tariffs, higher interest rates, reduced labor-force participation, or weaker economic growth could shorten the timeline.
At the same time, market confidence remains a crucial factor. If investors lose faith that policymakers will eventually stabilize federal finances, borrowing costs could rise more quickly than current forecasts anticipate.
“Bond markets unravel sooner when investors believe that the government will not restore fiscal sustainability.”
AI productivity gains could help improve the outlook
Despite the challenges, some policymakers and economists see technological innovation as a potential source of future economic growth.
CBO Director Phil Swagel recently identified productivity growth as one of the most important variables influencing long-term fiscal projections.
When discussing artificial intelligence, Swagel described the agency’s assumptions as cautious but optimistic.
“What if it doesn’t pay off to the extent we’re hoping? … That’s the kind of exercise we try to do here.”
“So far, we have just a modest impact of AI on productivity—10 basis points a year, so a full percent over 10 years added to the level of GDP. And that’s from the improvement of things that already exist. The part that we’re still trying to figure out is the new occupations, the new activities. We don’t have that, that’s not in our forecast because we don’t have a basis.”
If AI-driven productivity gains exceed current expectations, stronger economic growth could help ease debt burdens by increasing tax revenues and expanding GDP.
Debt concerns are becoming harder to ignore
The federal government’s debt burden continues to grow even as revenues increase and the deficit narrows modestly. Interest costs now rival the nation’s largest spending programs, and recent bond market developments suggest investors are paying closer attention to America’s long-term fiscal outlook.
While economists disagree on when debt levels could become unsustainable, there is broad consensus that rising borrowing costs, demographic pressures, and expanding entitlement obligations will make future budget decisions increasingly difficult. Whether stronger economic growth, technological advances, spending reforms, or higher revenues ultimately alter the trajectory, the nation’s nearly $39 trillion debt remains one of the most consequential economic challenges facing policymakers.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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