August 28, 2014

Snowballing Interest Costs Could Lead to Avalanche

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

A recent Congressional Budget Office report warns that interest payments on the national debt could swell to unprecedented levels unless lawmakers act to curb the growing imbalance between revenues and spending.

Although total interest costs will depend on a variety of factors, the combination of growing debt and climbing rates means that interest payments are likely to explode over the next 10 years.

Despite the recent surge in debt, the precipitous drop in rates over the past two years resulted in declining interest payments as a percentage of GDP.

Economic recovery and rising rates, however, could leave the government facing interest payments totaling nearly $800 billion—or 3.4 percent of the economy—by 2020. If lawmakers continue to extend certain policies (such as the 2001 and 2003 tax cuts), interest costs could climb even higher.