Total federal debt in the United States is on the brink of reaching a critical milestone, with projections indicating that publicly held debt is set to escalate significantly over the coming years. Currently standing at approximately $31 trillion, this figure represents about 100% of the country’s Gross Domestic Product (GDP). According to recent estimates from the Congressional Budget Office (CBO), the debt is expected to surpass the historical record of 106% set in the aftermath of World War II by 2030, potentially climbing to a staggering 120% by 2036.
A major factor contributing to this burgeoning debt is the annual interest costs, which are anticipated to more than double from their current levels, reaching $2.1 trillion by 2036. This increase will consume a larger share of federal expenditures and exacerbate existing budget deficits. The rise in interest expenses is closely linked to the yield on Treasury bonds, which the government issues to finance its considerable debt and deficits. Following years of exceptionally low interest rates, yields have begun to increase amid previous Federal Reserve rate hikes, concerns about unsustainable borrowing trajectories, and diminishing confidence in the U.S.’s reliability as a safe haven for global finance.
The CBO’s latest forecast predicts that economic growth will decelerate more than previously expected, with nominal GDP growth projected to cool from 4.1% in 2025 to 3.9% in 2026 and further down to 3.8% in 2027. Concurrently, the average interest rate on federal debt, currently 3.316%, is projected to rise to 3.4% this year before reaching 3.9% in subsequent years leading up to 2036. This increasing average interest rate will account for nearly half of the anticipated rise in interest costs over the next decade.
The Committee for a Responsible Federal Budget (CRFB) has expressed serious concerns regarding the CBO’s latest baseline, outlining an unsustainable fiscal outlook characterized by nearly record debt levels, persistent deficits exceeding reasonable targets, and rapidly increasing interest costs. The CRFB highlighted the possibility that, later in the decade, average interest rates on federal debt may surpass nominal economic growth rates, a scenario which could initiate a “debt spiral.”
In light of these forecasts, lawmakers often hesitate to pursue fiscal austerity measures due to fears of political repercussions. Instead, they frequently point to the potential for robust economic growth as a means of managing U.S. debt levels over the long term. However, should interest costs outpace economic growth, the risk of the debt reaching an unsustainable level becomes increasingly pronounced, raising the necessity for harsher measures to avert a fiscal crisis.
Moreover, the CRFB cautioned that the actual fiscal situation could be graver than currently projected. Although an increase in revenue generated from tariffs imposed during the Trump administration has temporarily alleviated deficits, this strategy faces legal uncertainties. If the Supreme Court rules that significant tariffs are illegal, and policymakers fail to extend various expiring or expired financial provisions, deficits may surge to as much as $3.8 trillion by 2036 rather than the projected $3.1 trillion, leading debt to soar to approximately 131% of GDP.
A ruling from the Supreme Court regarding Trump’s authority to impose global tariffs under the International Emergency Economic Powers Act (IEEPA) is anticipated later this month. The administration has indicated potential plans to implement alternative tariffs should the Court rule against the IEEPA duties, although this may require months to execute and may not replace the lost revenue completely.
In the short term, if the court rules unfavorably, tariff revenue may decline significantly, forcing the Treasury to issue more debt and causing volatility in the bond market.
Looking forward, while there remains a potential for the economy to exceed CBO’s growth forecasts—especially with advancements in artificial intelligence enhancing productivity—the CBO has adopted a cautious approach. Currently, it estimates that AI will contribute an additional 0.1 percentage points annually to total factor productivity growth, culminating in a total increase of 1 percentage point by 2036. The CBO acknowledges that the broader adoption of generative AI technologies may enhance efficiency and fundamentally alter labor organization, albeit with modest effects over the next decade.
