Interest Payments on America’s $40 Trillion National Debt Will Soon Exceed Defense Budget and Medicaid Combined

The United States Treasury Department confirmed this month that the nation’s gross national debt has crossed $40 trillion for the first time in history, months earlier than forecasters had expected. The figure, reported at $40.047 trillion as of August 19, reflects a debt load that has more than doubled since January 2017, when the total stood at just under $20 trillion.So, how much more debt can the country carry before the bill comes due? Spread across the population, that works out to roughly $119,000 for every American.Measured against the size of the economy, the debt now equals about 123 percent of gross domestic product, a ratio that puts America alongside Japan, Italy, and Greece. By the narrower measure economists use for historical comparisons — debt held by the public — the load is running just above 100 percent of GDP, closing in on the 106 percent peak set in the years immediately following World War II.Size alone isn’t what’s rattling Washington this year. It’s also the bill. Interest payments blew past defense spending back in fiscal 2024, and the gap hasn’t stopped accelerating since.“Rising interest costs are consuming a growing share of federal revenues and now surpass defense spending,” the director of budget and entitlement policy at the Cato Institute, Romina Boccia, tells The New York Sun. “This is a warning sign that government spending is becoming increasingly unsustainable, threatening American economic and military strength.”Budget analysts warn that Washington will not be able to outrun this trend forever.The debt does not stay confined to the government’s own books. Japan is the largest foreignholder of United States Treasury securities, at $1.14 trillion as of the most recent Treasury data, followed by the United Kingdom at $948.6 billion. China ranks third, at $659.3 billion, having sold off more than $650 billion — nearly half its holdings — since a 2013 peak of $1.3 trillion, as Beijing diversifies its reserves away from the dollar.Even a reduced position still pays out. At the roughly 3.3 percent effective rate the government pays on its marketable debt, Beijing’s remaining stake works out to an estimated $59 million a day — more than $21 billion a year. That means American taxpayers give almost $60 million every single day to one of its chief adversaries.Interest Now Outpaces the PentagonAccording to the February outlook from the Congressional Budget Office (CBO), still its most recent full baseline, net interest payments are projected to total roughly $1 trillion in fiscal year 2026, already exceeding CBO’s own projections for both national defense and Medicaid spending combined.Interest costs, measured as a share of GDP, are set to reach 3.3 percent this year, the highest level on record since at least 1940, when the government first began tracking the figure, and are projected to climb to 4.6 percent by 2036, when annual interest payments are expected to reach $2.1 trillion.Treasury’s own monthly figures show how quickly the shift has taken hold: net interest payments totaled $931 billion in the first ten months of fiscal 2026, already rivaling annual defense spending.The trajectory is not a one-year spike. CBO’s long-term projections show interest costs growing faster than any other major spending category over the next decade, expanding 106 percent between 2026 and 2036. Under current law, interest is expected to overtake Medicare spending by 2029 and become the largest line item in the federal budget by around 2047, ahead of Social Security, defense, and every other program.The trend shows no sign of slowing.“The CBO projects that major entitlement programs, Medicare, Medicaid, Social Security, and interest on the debt will consume all tax revenues by the end of this decade. Every dollar devoted to servicing past debt is a dollar unavailable for current government functions, including defense,” Ms. Boccia continues. “Fiscal sustainability is a prerequisite for military security.”A Defense Budget Competing with Its Own GovernmentThe squeeze comes at an uncomfortable moment for the Pentagon. The White House’s fiscal 2027 request calls for $1.5 trillion in defense spending, including a $1.15 trillion base budget authorized by the House Armed Services Committee and $350 billion more through a reconciliation bill, the largest year-over-year increase in military spending since World War II.Roughly $750 billion of that falls under a new “presidential priorities” category earmarked for Golden Dome, drone production, artificial intelligence, and the defense industrial base.Golden Dome alone shows how quickly ambitious defense goals can run into fiscal limits. The administration has budgeted $175 billion for the system; however, the Congressional Budget Office estimated in May that a matching missile shield could ultimately cost $1.2 trillion over two decades, with space-based interceptors alone accounting for roughly 70 percent of that price tag.Lawmakers pushing for higher defense spending have cast the debate around deterrence rather than dollars. When the House Armed Services Committee approved legislation authorizing a $150 billion increase in defense funding, its chairman, Rep. Mike Rogers, argued that reaching “at least 4 percent of GDP” in defense spending was necessary to restore American deterrence.Yet the CBO’s own projections show interest costs consuming a growing share of GDP over that same period, crowding into the same fiscal space defense hawks are trying to claim. The tension between those two goals — a leaner debt and a larger military — is not new.“The separate objectives of less debt and more defense appear contradictory,” a senior fellow and Milton Friedman Chair at the American Enterprise Institute, James Capretta, writes in a chapter of the newly published book “Affording Defense: Investing in American Strength to Confront a More Dangerous World,” a copy of which was shared with the Sun.“As Congress has approved and expanded large benefit programs that support individual Americans and their families, spending on them has escalated rapidly and without a permanent and growing hike in federal taxes. By default, Congress has chosen to protect all benefit commitments and sacrifice defense and fiscal stability.”The Choice Washington Keeps DeferringThe alarm bells have been ringing for years. CBO’s baseline puts this year’s deficit at $1.9 trillion — 5.8 percent of GDP — climbing to $3.1 trillion by 2036. Debt held by the public sat at 40 percent of GDP less than twenty years ago. Some analysts think it could clear 150 percent within thirty, if nothing changes.Put simply: about a dollar in four that Washington spends this year is borrowed. Under current law, that fraction only grows, regardless of which party is running Congress.Ask fiscal watchdogs on the left or the right why, and the answer sounds the same. It isn’t defense nor domestic programs. It’s entitlement costs, an aging population, and interest compounding on debt already piled up.Both parties have had a hand in getting here, Republicans through tax cuts and defense buildups, Democrats through entitlement expansions, and neither has much appetite to reverse course. Cutting the programs that drive the debt is politically toxic on both sides: an AARP survey found 85 percent of Americans age 50 and older oppose cutting Social Security or Medicare to shrink the deficit, with Republicans and Democrats nearly equally opposed.“This is a moment we knew was coming, we warned was coming, and our political leaders chose to ignore,” the president of the Committee for a Responsible Federal Budget, Maya MacGuineas, tells the Sun. “We need a debt plan to at least cut the deficit in half, from 6 percent of GDP to 3 percent. Citizens and politicians should stop talking about what they won’t do — don’t touch Social Security, no higher taxes, no cuts to welfare. The hole is now so large, we will have to do a bit of everything.”Is there a way out that doesn’t require gutting the safety net or the military?“A phased-in debt-stabilization plan would provide relief relative to current projections that would compound over time and thus create ever-growing space for other priorities,” a senior fellow at the American Enterprise Institute, Mackenzie Eaglen, tells the Sun.“That means it should be possible to move quickly on reinvesting in defense as part of a longer-term reform that makes room for that investment even as it brings total debt down to a sustainable level.”The institute’s proposal rests on three principles, Ms. Eaglen says: sustaining a growing economy through business investment and a larger skilled workforce, reforming the major entitlement programs — chiefly health care and Social Security — to make room for both tax relief and higher defense spending, and setting defense spending on a path well above what current law envisions.For now, the two trend lines are unmistakable. The cost of servicing America’s past borrowing rises every year, and so does the cost of preparing for its future security needs. At some point, those two lines will force a reckoning that Washington has so far managed to postpone.The bill, however, does not come due for the politicians writing it. It comes due for whoever is still paying taxes when it crashes. On the CBO’s current trajectory, gross federal debt climbs from $38.6 trillion today to $63.7 trillion by 2036, meaning a child born this year will not reach their eleventh birthday before the country has added nearly two-thirds again to what it already owes.“Congress has demonstrated that it lacks the political courage and bipartisanship to correct the fiscal course through regular order,” Ms. Boccia adds. “A BRAC-like fiscal commission, modeled after the successful base closing commission, offers the most promising path for breaking through congressional gridlock to stabilize the growth in the U.S. debt and preserve fiscal capacity for national defense needs.”

Interest Payments on America’s $40 Trillion National Debt Will Soon Exceed Defense Budget and Medicaid Combined

Interest Payments on America’s $40 Trillion National Debt Will Soon Exceed Defense Budget and Medicaid Combined

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