Interest on the Debt

Interest payments on the debt have historically been a small part of overall spending. For the past 40 years, they were an average of just 2% of Gross Domestic Product (GDP).

 

chart-interest-payments.top

 Chart obtained via CNN Money

 

However, over the next ten years, that is predicted to change. The CBO predicts that interest on the debt will nearly quadruple during this time, largely because of rising interest rates and increased spending and debt that will begin to skyrocket in the near future. Interest on the debt is a function of both the size of outstanding liabilities and rates the government must pay to finance its borrowing, as determined by the market interest rates.

 

While the national debt has grown dramatically in recent years, interest rates have remained at historical lows, which has caused interest payments to remain manageable during this time. However, should interest rates rise in the future — even if only to historical norms — the share of the budget dedicated just to paying those interest obligations could rise dramatically.