Trouble! US Now Pays More Interest on Debt Than on Military Spending

Jakarta, CNBC Indonesia - The United States (US) is now facing a major change in its government spending structure. For the first time since the late 1920s, the US government is spending more funds on interest payments for its debt than on national defence spending. This shift serves as an important signal regarding US federal budget priorities. As debt continues to swell and borrowing costs rise, interest payments on debt are taking an increasingly larger share of the national budget. According to Visual Capitalist, data from the White House and projections from the Congressional Budget Office (CBO) as of February indicate that US net interest payments on debt are estimated to reach US$2.1 trillion by 2036, equivalent to Rp36,340 trillion (assuming an exchange rate of Rp17,305/US$1). This figure far exceeds projected defence spending of US$1.1 trillion over the same period. For context, in 2024, US interest payments on debt reached US$879.9 billion, already surpassing defence spending of US$850.7 billion. Projections up to 2036 show that interest payments on debt will continue to grow faster than defence spending, even as the US military budget is also expected to increase. How Did US Debt Interest Overtake Defence Spending? The rise in the US debt interest burden did not happen overnight. From 1996 to 2001, US defence spending was on average about 30% higher than net interest costs. At that time, the interest burden was relatively controlled due to declining interest rates and periods of government budget surpluses. The gap between defence spending and interest payments on debt then widened sharply following the 11 September 2001 attacks. US military spending surged and even doubled over the following decade, reaching US$699 billion by 2011. Meanwhile, debt interest costs rose more slowly, remaining around US$230 billion during the same period. Entering the era of low interest rates in the 2010s, US borrowing costs remained low even as federal debt nearly doubled, rising from US$9.0 trillion in 2010 to US$16.8 trillion in 2019. This situation temporarily masked the long-term costs of the expanding debt. However, the landscape changed after the Covid-19 pandemic. A surge in government financing needs, combined with rising interest rates, caused debt interest payments to skyrocket. The US net interest burden nearly tripled to US$970 billion by 2025. In 2026, the US net debt interest bill is projected to reach US$1.0 trillion. At that level, interest payments on debt will become one of the fastest-growing major budget items. If current projections hold true, over the next decade, the US will spend far more funds on interest payments than on national defence. This situation raises major questions about how the US government will balance economic stability, security needs, and future economic growth. Why Is This Important? This change is more than just numbers. The rise in interest payments on debt indicates a fundamental shift in how the US utilises its fiscal resources. The larger the interest payments, the greater the portion of the budget that is “locked” into servicing past obligations. This means the government’s fiscal space to fund other priorities could become increasingly limited. The impacts could be felt across various sectors, from defence and infrastructure to research and programmes needed to drive economic growth. In the long term, a growing interest burden could also reduce the US government’s flexibility in responding to economic crises or emerging challenges. In other words, the rise in interest payments on debt not only reflects the US’s ever-increasing debt. More than that, the increasingly high interest burden also determines how much capacity the US government has to fund important future agendas.