Washington’s Debt Habit Is Catching up Fast

America’s debt problem is no longer abstract. Total federal debt outstanding surpassed $40 trillion last month. Excluding intragovernmental holdings—money the federal government essentially owes itself—debt held by the public is now above $32 trillion, roughly equal to the annual output of the U.S. economy.

That figure is troubling by itself, but the bigger issue is the trajectory. The Congressional Budget Office (CBO) projected in February that public debt will keep climbing over the next decade, reaching 120% of gross domestic product by 2036. Washington is not simply carrying a large debt load; it is adding to it faster than the economy is expected to grow.

The first driver is continued borrowing. The federal deficit is projected to reach 5.8% of GDP in 2026 and remain elevated for years. Even before interest, the government is spending more than it collects. The CBO estimates the primary deficit will total $814 billion, or 2.6% of GDP, in 2026. That is the amount Washington would still need to borrow even if all prior debt suddenly disappeared.

The second driver is interest expense. Net interest payments are expected to exceed $1 trillion in 2026, equal to 3.3% of GDP, and rise to 4.1% of GDP by 2036. Those costs are increasing because the government keeps borrowing and interest rates are higher.

The CBO expects the average interest rate on debt held by the public to reach 3.4% in 2026. That rate could drift higher as older, lower-cost debt matures and must be refinanced in today’s market. That makes it harder for the country to grow its way out of debt.

The key comparison is between the interest rate on federal debt and nominal GDP growth, which includes real growth plus inflation. The CBO estimates nominal GDP growth will average about 3.8% over the next decade. If borrowing costs approach that pace, debt can keep rising relative to the economy even if lawmakers eventually eliminate the primary deficit. Each year of delay makes the eventual fiscal adjustment larger. With midterm elections approaching, Congress is unlikely to resolve the issue soon. Once again, the can may be kicked down the road—but the road is getting more expensive.