Public Debt Charges: The Cost of Servicing Federal Liabilities

Interest expense versus principal

When a bond pays a coupon, that payment contributes to public debt charges. When principal matures, the transaction is a financing activity; it may be refinanced rather than recorded as a new program expense.

This distinction prevents a common error: adding all maturing principal to annual expenses as though government had to eliminate the entire debt that year.

What drives the cost

• The amount and composition of interest-bearing liabilities.
• Average effective interest rates on outstanding debt.
• New market yields when debt is issued or refinanced.
• Inflation adjustments on Real Return Bonds.
• Interest and actuarial components of pension and benefit obligations.

Useful affordability measures

Debt charges can be compared with total revenue, total expenses or GDP. The revenue ratio shows how much of each revenue dollar is committed before program choices are made.

A low average rate can make a large debt affordable in the short run, but refinancing at higher rates can raise costs over several years.