US national debt tops $40 trillion as interest costs balloon

The U.S. national debt breached $40 trillion on Aug. 18, more than double its 2017 level and ahead of CBO projections, as interest costs near $1 trillion a year compound the federal shortfall.

"We've been running deficits for the last 26 years, and we've basically ignored a lot of the structural challenges that exist in our budget," Michael Peterson, chief executive of the Peter G. Peterson Foundation, a fiscal watchdog, said. "It's clearly been accelerating because, like any debt problem, the longer you ignore it, the worse it gets."

The Treasury Department's daily report showed debt reached $40.05 trillion on Aug. 18. The government has run a $1.8 trillion deficit over the first 10 months of the fiscal year ending Sept. 30, while July's $432 billion shortfall was the largest monthly gap since March 2021. Net interest costs, which approached $1 trillion in 2025 and accounted for nearly 14 percent of federal spending, have more than tripled over five years and now rival Medicare as the government's second-largest expense behind Social Security.

The milestone forces lawmakers to confront a fiscal path the Peterson Foundation projects will reach $50 trillion within six years absent spending or tax changes. The 30-year Treasury yield hit its highest level since 2007 on Tuesday, and an auction of 30-year notes earlier this month drew the steepest yield since 2001, signs investors are demanding more compensation to hold U.S. debt.

Interest Costs Crowd Out Defense and Entitlements

The compounding burden stems from a structural gap between revenue and outlays. Roughly 10,000 Baby Boomers retire daily, expanding Social Security and Medicare rolls, while tax cuts passed over two decades — including the 2017 Tax Cuts and Jobs Act and last year's One Big Beautiful Bill Act, which the CBO estimates will add $4.2 trillion to debt through fiscal 2034 — have eroded receipts. The government now spends more servicing its debt than on national defense, Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, said.

Yields Climb as Investors Price Risk

The 10-year Treasury yield traded near the highest level of President Donald Trump's second term, lifting borrowing costs on mortgages, auto loans and corporate credit. The Treasury Department said Wednesday it would increase buybacks of long-term bonds in coming months, a move analysts read as concern over rising yields. Moody's stripped the U.S. of its last perfect credit rating in 2025, leaving the country a notch below top grade.

Not all economists view the debt as an imminent threat. Dean Baker, co-founder of the Center for Economic and Policy Research, said a strong economy lets the government carry the burden, with tariffs and the Iran war's effect on prices posing more immediate risks. Still, Margaret Spellings, president and chief executive of the Bipartisan Policy Center, warned that "AI disruption, a recession, global war or any number of other events could quickly push us over the edge from a challenge into a full-blown crisis."

Republicans raised the debt ceiling by $5 trillion last year as part of the One Big Beautiful Bill Act, which experts say pushes the next statutory limit confrontation to 2027. The last time the U.S. hit the ceiling, in 2023, a standoff brought the government within days of default and preceded a downgrade by Fitch Ratings.

This article is for informational purposes only and does not constitute investment advice.