US debt interest consumes over 20% of tax revenue as Treasury yields climb

Interest payments on the national debt now account for more than one-fifth of US tax dollars collected. At the same time, the 10-year Treasury yield remains close to its highest point in 24 years. This increase has not yet been fully reflected in federal spending.

According to the Congressional Budget Office, net interest payments surpassed $1.1 trillion during the fiscal year that ended Sept. 30, an increase of $115 billion or 11%. However, The Wall Street Journal noted that much of this year's yield rise is not yet included in that figure.

Why Has the Budget Not Yet Felt the Full Impact of Higher Yields?

Treasury yields determine what the government pays when it borrows new money. The 10-year yield reached 5.35% on Oct. 7, its highest since 2007, CNBC reported, and it has risen approximately 60 basis points since late July. One basis point equals 0.01 percentage points.

Yet the average interest rate on all marketable Treasury debt stood at 3.475% in August, compared with 3.415% a year earlier, according to a debt update from the Joint Economic Committee.

That rate remains well under the 5.3% the Treasury paid at Wednesday's auction of $39 billion in 10-year notes, which was the highest auction yield since 2000. Yields then slipped to roughly 5.29% following solid demand.

About 33% of marketable debt matures within 12 months, the JEC update showed, meaning the average cost could rise as that debt is refinanced at higher rates.

BREAKING: 🇺🇸 The US budget deficit hits almost $2 TRILLION in fiscal year 2026, up 12% from last year, per WSJ.

US spent $7.4 trillion while collecting just $5.4 trillion in revenue, with interest payments alone exceeding $1.1 trillion.

— Bull Theory (@BullTheoryio) October 9, 2026

Can Washington Slow the Rising Interest Bill?

The average rate increased by just 0.06 percentage points over the past year, indicating that the 11% rise in interest costs is more related to a larger debt load than to higher rates.

Policymakers have limited options to directly influence interest payments. The CBO estimated the fiscal 2026 deficit at $1.993 trillion, 12% higher than a year earlier, with spending up 6% and revenue up 3%.

Markets are assessing how climbing bond yields might affect stocks, while a weak September jobs report has lessened concerns about another Federal Reserve rate hike.

Neither political party has focused on reducing the deficit ahead of the midterm elections. President Donald Trump has proposed sending $5,000 checks to adults if Republicans retain control of Congress, a plan that would cost over $1 trillion and likely be funded through borrowing.

With the deficit nearing 6% of gross domestic product in a growing economy, the gap between older and newer borrowing costs could limit the options available to the next Congress.