Interest Payments on Debt Consumed More Than Half of US Income Tax Revenue in July

The national debt clock at a bus station in Washington, on Aug. 6, 2024. Madalina Vasiliu/The Epoch Times

Federal interest payments consumed most of the U.S. government’s individual income tax collections in July as debt-servicing charges on the national debt remained elevated, according to new Treasury Department data.

The federal deficit totaled $244 billion in July, up 10 percent from a year ago. So far this year, the budget shortfall is $1.517 trillion.

A blend of higher interest payments on the national debt and an increase in government spending fueled the budget deficit last month.

According to the Treasury, federal spending totaled $574 billion, up 15 percent year over year. Tax receipts were $330.4 billion, 20 percent higher than a year ago.

The 12-month rolling deficit between August 2023 and July 2024 was largely unchanged at $1.6 trillion, the Committee for a Responsible Federal Budget calculated.

In July, the largest monthly budget items were Social Security ($123 billion), Medicare ($92 billion), net interest ($81 billion), health ($73 billion), and national defense ($71 billion).

Interest payments represented about one-third of last month’s shortfall and consumed about 52 percent of individual income tax collections.

The Treasury Department anticipates that interest payments will exceed $1.1 trillion in the current fiscal year and consume nearly half of income tax revenues.

On a fiscal year-to-date basis, interest charges are already the second-largest budgetary item—$763 billion—surpassing Medicare ($721 billion), national defense ($715 billion), and income security ($566 billion). Social Security has remained the top outlay, exceeding $1.2 trillion.

With two months left in fiscal year 2024, the Congressional Budget Office (CBO), a nonpartisan budget watchdog, expects the budget deficit to be $1.9 trillion, up $400 billion from the previous estimate.

Annual budget deficits are projected to be above $2 trillion, totaling about $22 trillion by 2034, according to the CBO.

In addition, the budget watchdog expects that annual interest payments will likely remain above $1 trillion and represent a substantial portion of the federal budget over the next decade.

The federal government’s fiscal year runs from October to September.

Alarm Bells

Following the latest fiscal statistics, there were renewed calls for officials to address the government’s growing fiscal challenges.

Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, for example, said that the United States is “sleep-borrowing $5 billion a day” and that public policymakers “have slept through so many alarm bells.”

As the national debt is poised to exceed a record share of the economy, MacGuineas said she’s concerned that the next president will refrain from grappling with the issue.

“What we have gotten is a taste of the many ways things can get worse, including promises to extend some or all of the expiring tax cuts without a plan to make up for that lost revenue, as well as promises to not touch Social Security and Medicare as they run ever-closer toward insolvency and automatic benefit cuts,” she said in a statement.

Citing the $35 trillion national debt milestone that was reached last month, Les Rubin, an economist, said immediate action is crucial to address the nation’s increasing financial obligations to future generations.

“We must prioritize policies that promote fiscal discipline while ensuring that essential services are not compromised,” Rubin, the CEO of Main Street Economics, said in a statement emailed to The Epoch Times. “It is through prudent financial management and a commitment to economic responsibility that we can secure prosperity for future generations.”

The national debt has garnered little attention this election cycle. Instead, the presidential candidates have proposed eliminating some taxes and keeping Social Security and Medicare intact.

Former President Donald Trump has recommended eliminating taxes on retirement benefits for seniors. Forty percent of recipients currently pay federal income tax, and several states tax Social Security.

In addition, he has called for an end to taxes on tips, which Vice President Kamala Harris echoed in a speech on Aug. 10.

“When I am president, we will continue our fight for working families of America, including to raise the minimum wage, and eliminating taxes on tips for service and hospitality workers,” Harris said.

White House press secretary Karine Jean-Pierre told reporters at an Aug. 12 press briefing that President Joe Biden would “absolutely” sign such legislation.

“Look, this is something that the president supports,” Jean-Pierre said. “He supports eliminating taxes on tips for service and hospitality workers while also raising the minimum wage and preventing the wealthy from gaming the system.”

In February 2023, the IRS introduced a voluntary program “to improve tip reporting compliance.”

Momentum to establish a national debt commission appears to have stalled. Both sides of the aisle have expressed concerns about its formation, with one group warning that it might lead to calls for tax increases, with others sounding the alarm that it may propose cutting Social Security benefits.