In a few years, the total federal debt is approaching a foreboding milestone, yet a potentially more concerning tipping – point might also be on the horizon soon.
According to the , the publicly – held debt currently stands at $31 trillion and is approximately 100% of the GDP. By the fiscal year 2030, the debt is anticipated to surpass the 106% record set after World War II and then soar to 120% by 2036.
What’s driving this accumulation are the annual which will more than double from the current levels to $2.1 trillion by 2036, consuming a larger portion of federal spending and further accelerating budget deficits.
A crucial factor in interest costs is the yield on the bonds issued by the Treasury Department to finance America’s huge debt and deficits. After years of extremely low rates, the yield has been rising due to previous Federal Reserve rate hikes, the unsustainable borrowing trend, and concerns that the Trump administration has made the U.S. less reliable in global finance.
The CBO’s forecast indicates that the economy will expand at a slower pace than previously expected, with nominal GDP growth (not adjusted for inflation) dropping from 4.1% in 2025 to 3.9% in 2026 and 3.8% in 2027.
Meanwhile, the Treasury Department issues debt with various maturities and yields. The it pays is currently 3.316%. The CBO predicts the rate will rise to 3.4% this year and continue to increase, reaching 3.9% in the final years of its projection period, which extends to 2036. The rising average interest rate will account for about half of the increase in interest costs over the next decade.
“The CBO’s latest baseline reveals an unsustainable fiscal outlook, with debt approaching record levels, deficits remaining high at more than twice a reasonable target, and interest costs skyrocketing,” the Committee for a Responsible Federal Budget stated in a note on Wednesday. “Later in the decade, under the CBO’s baseline, the average interest rate on all federal debt will exceed nominal economic growth, which could mark the start of a debt spiral.”
Fearing the political backlash from fiscal austerity, lawmakers often highlight the possibility of strong economic growth as an alternative way to keep U.S. debt under control in the long run.
However, the threat of interest costs growing faster than the economy risks pushing the debt into a situation where it becomes uncontrollable and forces more drastic measures to prevent a crisis.
The CRFB warned that the actual fiscal outlook could be far worse than even the latest sobering projections. Although the booming revenue from Trump’s tariffs has helped reduce deficits, they are on shaky legal footing.
“If the Supreme Court sides with the lower courts and rules that a large portion of the President’s tariffs are illegal and policymakers extend various expiring or expired provisions, deficits could reach $3.8 trillion in 2036 instead of $3.1 trillion, and debt could grow to 131% of GDP by 2036 instead of 120%,” the budget watchdog added. “In this case, a debt spiral would be much more likely, and the risk of a fiscal crisis would increase.”
A decision from the high court regarding Trump’s ability to impose his global tariffs under the International Emergency Economic Powers Act (IEEPA) could come later this month.
The administration has said it could use other laws to implement tariffs that would replace the IEEPA duties if the justices rule against Trump. But in some cases, that would take several months, and some levies would have a more limited lifespan.
Meanwhile, right after a court defeat, tariff revenue would drop sharply, and the administration would also face claims to reimburse companies that paid the duties, forcing the Treasury to issue more debt than planned and shaking up the bond market.
Of course, the U.S. economy could perform better than the CBO’s growth forecasts and improve the debt outlook, especially if AI unlocks greater productivity. For now, the CBO has taken a relatively conservative view, estimating that AI will add only 0.1 percentage point a year to total factor productivity growth and ultimately boost output by 1 percentage point by 2036.
“The widespread adoption of the generative AI applications currently in production is expected to enhance business efficiency and the organization of work and thus slightly increase TFP growth over the next decade,” the CBO said.