For the first time, the federal government is projected to spend more on interest payments on its debt than on Medicare this fiscal year, a milestone laid out in the Congressional Budget Office’s February 2024 long-term budget outlook. Net interest costs are forecast to reach $870 billion in fiscal year 2024, exceeding the $849 billion projected for Medicare.
The gap is expected to widen significantly in the years ahead, as the CBO projects interest costs climbing to $1.6 trillion by 2034, with the national debt reaching $50 trillion. The debt-to-GDP ratio, a standard measure of the nation’s economic health, is projected to hit 166 percent by 2054. The federal deficit is expected to average $2 trillion per year from 2025 to 2034, according to the CBO.
That persistent shortfall means the Treasury will continue issuing debt to fund operations, with monthly borrowing of $155 billion expected to remain a regular feature. The debt ceiling suspension expires on Jan. 1, 2025, after which the Treasury will again face borrowing limits, a recurring source of political brinkmanship in Washington.
Interest Costs Eclipse Medicare for the First Time
The CBO’s report underscores how the federal government’s borrowing is consuming an ever-larger share of its budget. The $870 billion interest payment forecast for fiscal year 2024 marks the first time that net interest costs have surpassed spending on the Medicare program.
The numbers are not abstract; they represent real trade-offs in how the government allocates resources. Higher interest costs mean less room in the budget for other programs, and rising debt levels can eventually slow economic growth. The CBO’s outlook serves as a reminder that the choices made in the coming years — on taxes, spending, and debt management — will have consequences that stretch decades into the future.
The Federal Reserve is expected to begin cutting interest rates in late 2024, which could reduce borrowing costs for the government. But the CBO’s projections suggest that even with lower rates, the sheer scale of the debt will keep interest payments climbing.
The persistent deficit means the Treasury will continue its monthly borrowing rhythm, and the clock ticks toward the debt ceiling’s return.
Long-Term Fiscal Trajectory and Economic Risks
The CBO’s projections paint a stark picture of the nation’s fiscal trajectory. By 2034, net interest costs are projected to reach $1.6 trillion, while the national debt climbs to $50 trillion.
The debt-to-GDP ratio, a key indicator of economic health, is expected to reach 166 percent by 2054. The federal deficit is projected to average $2 trillion per year from 2025 to 2034. Including the effect of monthly borrowing of $155 billion, the Treasury will remain a steady issuer of debt to fund operations.
What this means for the broader economy is a subject of debate. Rising debt levels can eventually slow economic growth, and higher interest costs reduce the fiscal space for other priorities such as defense, infrastructure, or social programs.
The CBO’s warnings about rising debt and interest costs crowding out spending on other priorities remain a central concern for lawmakers. The debt ceiling suspension expires on Jan. 1, 2025, after which the Treasury will again face borrowing limits, a recurring source of political brinkmanship in Washington. The choices made in the coming years on taxes, spending, and debt management will have consequences that stretch decades into the future, according to the CBO’s outlook.
The CBO’s Role in Fiscal Debates
The Congressional Budget Office is a federal agency within the legislative branch that provides Congress with budget and economic information. It was established by the Congressional Budget and Impoundment Control Act of 1974 following a dispute between President Nixon and a Democratic Congress over control of spending.
Lawmakers sought a nonpartisan source of expertise to reduce reliance on the president’s budget office. Official work began in 1975, and the agency was modeled on California’s nonpartisan legislative budget office. Economists broadly accept its forecasts as credible across administrations, though politicians have at times criticized its estimates when inconvenient.
The CBO’s long-term outlook shapes how the public and lawmakers view fiscal limits. Its warnings feed debates over borrowing, interest costs, and room for other programs.
Readers see those tradeoffs in federal budgets and political fights over the debt limit. The February 2024 report remains the most comprehensive look at where the nation stands and where it is headed, according to the agency.
