The U.S. Is Spending More On Debt Interest Than Defense. The Annual Bill Just Hit $1.05 Trillion.

The United States spent a record $1.05 trillion in net interest on its national debt during fiscal 2026, surpassing the amount allocated to national defense as higher borrowing costs added to the federal government's growing financial burden.

The interest bill was the government's third-largest expense, behind Social Security at $1.67 trillion and Medicare at $1.07 trillion, according to the Treasury Department's latest budget figures.

The figures showed that the federal budget deficit reached $1.992 trillion for the fiscal year ended Sept. 30, an increase of $217 billion from 2025 and the largest annual shortfall since 2021.

Federal spending climbed approximately 6% to $7.4 trillion, outpacing a 3% increase in revenue to $5.4 trillion. The deficit amounted to roughly 6.2% of gross domestic product, a measure of the country's total economic output.

The cost of servicing the national debt has increased as Washington continues borrowing to finance spending that exceeds tax collections. Higher interest rates have made that borrowing more expensive, particularly as older Treasury securities mature and the government issues new debt at prevailing market rates.

Net interest spending increased by approximately $81 billion from the previous fiscal year, accounting for a substantial portion of the overall rise in federal expenditures.

The Committee for a Responsible Federal Budget estimates that net interest costs reached approximately 3.3% of GDP in 2026, a historically high level. The ratio has risen sharply since 2021, when the federal government was borrowing at considerably lower interest rates.

Unlike spending determined through annual congressional appropriations, interest costs depend heavily on the size of outstanding debt and financial market conditions.

When Treasury yields rise, refinancing existing obligations can become more expensive, even if the government does not significantly increase the amount it borrows.

Higher financing costs also affect the federal budget because interest payments themselves contribute to annual spending, increasing the amount the government must borrow when revenue is insufficient.

The Congressional Budget Office's October budget review identified higher net interest costs, major benefit programs and defense spending among the principal factors driving expenditure growth.

Social Security outlays increased by approximately $86 billion to $1.67 trillion, while Medicare spending rose by $76 billion to $1.07 trillion. Medicaid expenditures also climbed, reaching approximately $723 billion.

National defense spending increased by roughly $49 billion to $965 billion, while veterans' benefits rose by approximately $39 billion. Revenue growth was led by individual income and payroll taxes, reflecting higher collections from wages and employment.

Individual income tax receipts increased by approximately $189 billion to $2.8 trillion, while payroll tax collections reached about $1.8 trillion. Those gains were partly offset by weaker corporate tax receipts and lower net customs revenue.

Corporate income tax collections fell approximately 16% to $381 billion, while net customs duties declined to $173 billion. The reduction in tariff revenue followed refunds associated with a Supreme Court ruling against several import duties imposed by the Trump administration. Despite higher overall tax collections, the government continued spending substantially more than it received.

The annual borrowing requirement added to an already substantial national debt. Debt held by the public increased by approximately $2 trillion to $32.4 trillion during fiscal 2026, reaching roughly 100% of GDP.

This measure includes Treasury securities held by investors, financial institutions, foreign governments and the Federal Reserve but excludes debt held within federal government accounts.

Gross federal debt, which includes those intragovernmental holdings, surpassed $40 trillion during the year. The distinction matters because debt held by the public is generally used to assess the government's borrowing obligations relative to the economy.

Washington has previously reduced major budget shortfalls through combinations of spending restraint and tax changes.

In 1990, President George H.W. Bush negotiated a bipartisan deficit-reduction agreement that included tax increases and spending controls. Further measures during the Clinton administration helped produce federal budget surpluses later that decade.

The federal government closed September 2026 with a monthly deficit of approximately $27 billion, compared with a surplus of nearly $198 billion in September 2025, according to Treasury figures.