Could Interest Expense Become One of the Largest Government Programs?

Photo: Diego Delso, Wikimedia Commons, CC BY-SA 3.0

01 A $40 trillion balance, a program-sized bill

When the U.S. national debt passed $40 trillion — a milestone reported in August 2026 — the number that should have gotten the attention was not the balance itself but the invoice that comes with it. Interest is not an abstract cost of past decisions; it is a current budget line that must be paid in cash every month, like Social Security or Medicare, and it is now among the very largest of them.

Federal net interest — interest paid minus interest received — came in at $882 billion in fiscal 2024, already more than the entire defense budget that year, and the line has kept climbing since as cheap maturing debt refinances at higher yields. In fiscal 2026 it plausibly reaches the trillion-dollar territory once reserved for retirement programs.

Analysis — not prediction. N43 and Hermes AI grounds every scenario in the documented record and verified reporting as of September 21, 2026; where evidence is incomplete we say so.

02 Where interest now ranks

Set the major budget lines side by side and the picture is stark. Social Security remains the largest program. But net interest — which buys no aircraft, funds no doctor visits, pays no benefits — is now estimated to rank second in fiscal 2026, ahead of Medicare and defense. The line moved from ninth place among major outlay categories in 2020 to the top tier in roughly five years.

The speed is what makes this a governance question rather than an accounting footnote. Interest spending grew faster over the last three fiscal years than any program Congress actually votes on. No appropriation, no authorization, no new law created this program — it is the automatic, contractual claim of bondholders on the federal budget.

03 The arithmetic that made it automatic

Two multipliers drove the surge. The stock roughly doubled — from about $20 trillion of gross debt in 2017 to a reported $40 trillion in 2026 — and the average rate on it more than doubled, from roughly 1.6 percent in 2021 toward 3.5 percent as the low-coupon debt of 2020-21 refinances at market yields. Neither Congress nor the administration chose either multiplier directly; the stock accumulated through cumulative deficits, and the rate is set by the market the Treasury must borrow from.

At $40 trillion, the interest bill is now a product of two large numbers, which is why small moves matter so much: a single percentage point on the average rate is roughly $400 billion a year — more than the annual budget of the Department of Veterans Affairs and the Department of Education combined.

04 The 1990s benchmark — and why this time is different

The last time interest consumed this much of the economy was the early 1990s, when net interest peaked around 3.2 percent of GDP. What followed is the one documented case of an interest problem actually solved: a decade of divided-government budget deals, a strong economy, and falling rates cut the share to 1.4 percent by the late 2000s. Optimists cite that episode as proof the cycle can turn.

The differences are structural. In 1991 the debt held by the public was roughly 60 percent of GDP and falling; today it is near 120 percent and rising on every baseline. In the 1990s the demographic programs were still collecting far more than they spent; today Social Security and Medicare deficits are automatic, growing claims. And in the 1990s the term premium compressed as inflation died; in 2026 it has been rebuilt by fiscal supply and inflation volatility. The medicine that worked once is being prescribed to a patient with a different disease.

05 Crowding out the budget Congress actually controls

The competition inside the budget is zero-sum in a way headline numbers obscure. The entire non-defense discretionary budget — everything from medical research to air-traffic control to food safety — is roughly the same size as the interest bill. Every increment of interest is an increment unavailable for any program a legislator could name in a campaign ad, which is why interest is sometimes called the first program funded each year: it is paid before anything else, on time, in full, because the alternative is default.

The crowding-out mechanism is already visible in the appropriations process: real discretionary spending has been squeezed for years, and the pressure compounds annually because interest itself grows without any vote being taken. A budget line that expands by hundreds of billions per decade, automatically, gradually converts every other priority into a shrinking share of a fixed pie.

06 The feedback loop to watch

Interest expense feeds itself. More interest means more borrowing; more borrowing means more supply in the Treasury market; more supply — in a market already demanding a positive term premium — means higher yields; higher yields mean a higher average rate on the debt; and the higher average rate means more interest. r versus g is the shorthand economists use: if the interest rate on the debt exceeds the economy's nominal growth rate, the debt-to-GDP ratio drifts upward even with a balanced primary budget.

For 2026 the honest reading is that the loop is engaged but not runaway: the United States still borrows in its own currency at deep-market rates. The question for the next several budgets is not whether interest becomes one of the largest programs — it already has — but whether the other programs learn to live in its shadow, or the political system finally treats the interest bill as a program worth reforming the rest of the budget around.