Net interest outlays consist of the interest that the federal government pays on debt held by the public minus certain types of interest that it receives. The government’s interest payments depend largely on interest rates and the amount of debt held by the public. Because interest rates have fallen to historically low levels, net outlays for interest remain low even as debt held by the public has surged.
In fiscal year 2020, the government’s net interest outlays accounted for 5.3 percent of total spending and were equal to 1.6 percent of gross domestic product. Over the next 10 years, net interest outlays are projected to grow steadily as interest rates rise and the size of the debt increases.
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