Politicians have repeatedly warned about our growing debt, to no avail. During Donald Trump’s first administration, Senator Rick Scott argued in 2019 that high debt levels could lead to a “sovereign debt crisis,” as the cost of servicing “the national debt will increase faster and faster.”
At the 2012 Democratic National Convention, Barack Obama warned that long-term debt would then consume an increasingly large share of the federal budget.
As a senator in 1995, Joe Biden echoed that concern during the balanced-budget-amendment debate, saying that if the country stayed on its existing fiscal path, “an increasingly larger share of every tax dollar” would go toward reducing interest on the debt.
Despite these warnings, we also know, as shown in a second graph in Guess Who Is Responsible for Our National Debt?, that the administrations of Obama, Trump, and Biden all made the largest nominal contributions to the national debt of any past administrations, each exceeding $8 trillion.
When debt climbs, neither inflation nor interest rates automatically go up.
The basic, common-sense conclusion these politicians and media commentators drew is that as the debt grows, so will the share of the federal budget devoted to paying it. I began collecting data to illustrate this trend. However, I ran into a problem. It’s not that simple. In fact, more than just debt size determines how much of our budget goes to servicing our debt.
A chart that has been ignored.
The chart below shows how the total debt and public debt have continually risen since the beginning of Bill Clinton’s Administration. It also shows how much of the federal budget was devoted to paying debt and what the interest rate on that debt was.
Explaining the above chart.
On the left side (Y axis) is the size of the total federal debt. On the bottom (X axis) are the years spanning the presidential administrations from Bill Clinton to September 2026, during Donald Trump’s second administration. On the right side are the percentages of the effective interest burden rate of the federal budget.
The thick blue line shows how total debt has steadily risen since the beginning of Bill Clinton’s Administration. In fact, total debt began rising continuously under Ronald Reagan. For brevity and space, the graph begins with Clinton. The end point of this line is at the $40 trillion total debt we now have.
The red line below it, which tracks closely with the line above, is our public debt, which has accounted for about 80% of total debt for more than a decade.
Total debt includes public debt and intragovernmental debt owed to internal trust funds, such as Social Security and Medicare. However, when Social Security redeems its Treasury securities to pay benefits, Treasury must obtain resources elsewhere—through taxes, other revenues, or borrowing from the public. In other words, the Treasury converts an intragovernmental obligation into a need for cash and resources.
The thin blue line shows the share of the budget used to pay down debt. The thin red line shows interest rates on the debt. Leaders on both sides expected that growing debt would place a greater burden on the budget and increase interest costs. However, that didn’t happen.
A surprise – Increasing debt does not necessarily lead to higher interest payments.
Although the total national debt grew from Bill Clinton’s to Barack Obama’s administrations, net interest payments as a percentage of the federal budget fell from over 14% to just under 10%. Meanwhile, interest rates on debt ranged from 2% to 3.5%, with peaks in the first year of Bill Clinton’s first term and in Trump’s second term. “Effective rate” is defined by CBO as net interest payments divided by debt held by the public at the end of the preceding fiscal year.
Contrary to what leaders of both parties feared, there wasn’t a one-to-one relationship between increased debt and either higher interest payments or a greater burden on the federal budget.
Public debt interest cost, which roughly determines the intragovernmental interest rate, is set in the marketplace, where investors assess the risk and return of holding U.S. government debt. Risk is lower if the U.S. is seen as having a strong, stable economy capable of growth; the benefit to holders of U.S. debt is an acceptable rate of return over a stable period.
That is why, over roughly three decades, even as the national debt expanded from under $5 trillion to over $40 trillion, our budget’s debt interest costs did not mirror that explosion. Annual net interest costs remained relatively stable because of a multi-decade structural decline in both inflation and Treasury bond yields to near-zero levels. I didn’t anticipate this pattern, and neither did many politicians and reporters.
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The Federal Reserve and Trump
Trump believes that if the Federal Reserve lowers interest rates, the debt will decline because lower rates will stimulate economic growth, generating more tax revenue to cover debt costs. Trump graduated from the prestigious Wharton School of the University of Pennsylvania with a Bachelor of Science in economics; however, he seems to have an undergraduate’s euphoric optimism about his ability to manipulate the U.S. economy.
Although inflation averaged nearly 5% during Biden’s term, it’s now around 3%. The Federal Reserve sees that overall price levels remain elevated rather than returning to pre-pandemic levels.
Consequently, it just raised interest rates to prevent inflation from rising. Trump opposed that decision because he assumes that if the Federal Reserve lowers the prime rate, inflation and interest payments will decrease before the midterm elections. The hoped-for political effect is that Republicans up for election will have falling interest rates to point to.
However, Trump ignores that lowering interest rates usually increases economic demand and prompts more inflation. That’s because lower interest rates mean cheaper credit, which allows more loans and a larger money supply that fuels higher prices. The Fed is concerned that cheaper credit could add more demand before the existing inflation pressure has fully subsided.
Trump is making two critical mistakes in his demand to lower interest rates. First, if he forced the Fed to do his bidding, it would suggest that our central bank’s decisions reflect arbitrary political interests decided by a single person rather than a more predictable decision-making process by financial experts who use data to adjust our capital markets.
Trump’s second mistake is ignoring the global market’s assessment that, by initiating trade wars and the war with Iran, the financial market expects the U.S. to continue experiencing rising inflation. Consequently, Trump’s actions have led to weaker demand for U.S. bonds, which has pushed yields higher and increased interest costs to service our debt load. The evidence is clear: just this September, higher yields were required to sell our bonds, with 10- and 30-year yields reaching 20- and 30-year highs.
As Trump increases debt, a larger share of the budget will go to debt payments this time, unlike in the past.
Trump has been accumulating debt faster in his second term than in his first. Debt increased by $600 billion by Biden’s last year and is estimated to rise by $1 trillion before Trump finishes the first half of the current term. This time, the nation’s economy cannot sustain such a massive increase in debt. As a result, the interest outlay as a percentage of federal spending rose from 9.01% to 14% as of mid-September.
This situation differs from periods when a debt increase did not take a bigger bite out of the budget. A high debt level is tolerable if the economy generates more revenue than it spends. That was usually the case for the US for the three decades following WWII. However, the US debt-to-GDP ratio has been above 100% since the final year of Obama’s term, and the current 124% matches the level in Biden’s final year in office.
The most recent surge in debt was a necessary response to an emergency no president created: the COVID-19 pandemic. It crippled our economy under both Trump and Biden through business and school lockdowns and economic slowdowns. In response, they quickly pumped money into the economy to avoid a severe recession.
Consequently, inflation surged sharply as businesses reopened and demand outpaced supply. In June 2021, the Consumer Price Index (CPI) reached a 12-month peak of 9.1%, a four-decade high. To slow inflation, the Federal Reserve rapidly hiked interest rates in 2022–2023. At the same time, the U.S. government reissued its massive debt at significantly higher yields (the annual interest payment divided by the bond’s price).
Treasury notes account for over half of all marketable Treasury debt and have an average maturity of six years, which exceeds a four-year presidential term. Consequently, even without additional debt, these payments will remain high well past the November 2028 elections, and the subsequent burden on the budget will continue to grow.
With interest rates on our Treasury debt rising, this is no time to add more debt. Yet two of Trump’s biggest initiatives, starting wars with Iran and our trading partners, are digging this deeper debt hole.
This September, the CBO released new findings to Congressman Brendan F. Boyle, Ranking Member of the House Budget Committee, showing that the war in Iran directly cost the United States nearly $40 billion through August 1, 2026. Repairing damaged facilities, rebuilding our depleted munitions supplies, and debt-service costs will push the total significantly higher.
According to data breakdowns by organizations such as the National Taxpayers Union Foundation, cumulative estimates of the trade war’s impact have reached approximately $343 billion across the U.S. In March, economists at the Federal Reserve Bank of New York found that tariffs imposed in 2025 by Trump were costing U.S. companies and consumers $3 billion a month in additional tax costs. They also concluded that almost all of the cost of the tariffs was being paid by U.S. companies and consumers.
While the cost figures from these wars are not the same as federal debt, they reduce national revenue, making it harder to pay off the national debt. They also impose an indirect tax on most citizens to fund these initiatives and to pay off the debt.
Who is paying off our government’s debt?
Under our tax structure, not all citizens carry the same burden of paying taxes. I wrote that we now have a wider wealth gap between rich and poor than in any other major developed nation, in Congress Can Reverse America’s Growing Wealth Disparity.
What I didn’t cover is that our debt yields high returns on Treasury Notes, which are primarily held by the top 10% of the wealthiest Americans. The closest data on that distribution comes from the Federal Reserve’s Distributional Financial Accounts (DFA). In the 2026 First Quarter report, the top 1% of households own 39% of equities and mutual funds, while the next 19% own 48%. The remaining 80% of U.S. households hold 13%.
When politicians say Americans are being burdened by paying off our debt, that is true, but it ignores how that burden is being paid. The wealthiest 20% of us receive interest payments from the government for holding that debt. The rest of us pay it directly through our income taxes and receive no direct monetary rewards. Another catch: the income tax schedule, exemptions, and credits place a larger share of the household income tax burden on 80% of Americans than on the top 20%.
Trump’s Big Beautiful Bill not only continued that discrepancy but also baked into our future an increase in the national deficit and debt of $3.4 trillion to $4.1 trillion over the 2025–2034 period, according to the Congressional Budget Office.
The CBO estimates that the Republicans’ Big Beautiful Bill cuts taxes, resulting in an average annual income increase of $13,600 for the richest 10% of Americans. In line with that finding, the Center for American Progress (CAP) reported that the Big Beautiful Bill (BBB) funnels nearly $2.3 trillion in tax cuts, mainly to the richest 10% of Americans, which accounts for 70% of the law’s total deficit cost.
What is to be done?
When the patient is wounded, the first thing you should do is stop the bleeding. In this instance, fighting with our trade partners and Iran needs to end. The bigger problem is that the tax code needs to be overhauled to reallocate the tax burden to reflect a fairer ability to pay.
Either party could take these two steps. Since Republicans have not pursued them, public opinion increasingly makes it clear that Democrats must. If Democrats run on these issues, they could become the majority in Congress. Then the burden will be on them to make these changes. If they fail, they can forget about winning again in 2028.
Nick Licata is the author of Becoming A Citizen Activist and Student Power, Democracy and Revolution in the Sixties. He is the founding board chair of Local Progress, a national network of over 1,300 progressive municipal officials and a former Seattle City Council President.
