The U.S. Spends Over 20% of Tax Revenue on Government Debt Interest

Over 20% of tax revenues in the U.S. are spent on interest payments on the national debt. The yield on 10-year Treasury bonds remains close to a 24-year high, but the increase in yields has not yet been fully reflected in the budget.

According to the U.S. Congressional Budget Office, net interest payments for the fiscal year ending September 30 exceeded $1.1 trillion, an increase of $115 billion, or 11%. A significant part of this year's yield increase is not yet included in the total. Yields determine how much Washington pays for new borrowing. According to CNBC, the 10-year yield reached 5.35% on October 7, the highest since 2002, rising by about 60 basis points over three months (one basis point equals 0.01 percentage points).

The average rate on all marketable Treasury debt in August was 3.475%, 0.06 percentage points higher than a year earlier. This is lower than the 5.3% the U.S. Treasury paid at a 10-year bond auction on Wednesday, the highest since 2000. After the auction, the yield fell to 5.29% amid high demand. About 33% of marketable debt matures within 12 months, so the average cost of servicing will rise when refinancing at higher rates. The 11% increase in payments is primarily due to the increase in the volume of debt, not rates. The CBO estimated the budget deficit for the 2026 fiscal year at $1.993 trillion, 12% more than the previous year, with spending rising by 6% and revenues by 3%. The deficit is approaching 6% of GDP amid a growing economy.