When the federal government spends more than it collects, it runs a deficit. Borrowing helps cover that gap, and the government pays interest on its debt. Here is how those pieces fit together and how Treasury reports the interest.
What is the difference between the deficit and debt?
A deficit is the gap between federal spending and revenue over a period, such as a month or a year. Treasury calls spending outlays and revenue receipts. When revenue exceeds spending, the result is a surplus.
Spending − revenue = deficit For example, if the government spends $600 billion and collects $450 billion in a month, the deficit is $150 billion. These amounts are an illustration, not reported figures.
Debt is the amount the government owes at a point in time. Deficits generally increase the need to borrow. Changes in the government's cash balance and other financing activities also affect borrowing, so the increase in debt does not always equal the deficit.
Interest is already part of federal spending and is included when the deficit is calculated. Higher interest costs leave less room in the budget for other priorities unless revenue rises or borrowing increases.
The government borrows by issuing Treasury securities: promises to repay money, usually with interest. Table 5 divides Interest on Treasury Debt Securities (Gross) into two categories. Their names describe both the securities involved and when the interest is recorded.
Public Issues (Accrual Basis)
This is interest on Treasury securities issued for public investment, including Treasury bills, notes, bonds, and savings bonds. Investors can include individuals, financial institutions, and foreign investors. “Public” does not mean only American households.
Accrual basis means interest is recorded as it builds up. The government recognizes the cost as the investor earns interest, even if the payment comes later.
For example, a bond may pay interest every six months, but interest builds up between payments. The amount reported for a month therefore does not necessarily equal the cash paid to investors that month. TreasuryDirect explains how these securities work.
Special Issues (Cash Basis)
This is interest on special Treasury securities held by government accounts, including trust funds such as Social Security's. These securities are reserved for government accounts rather than sold to the general public.
Cash basis means interest is recorded when it is paid or credited to the account. The account can reinvest that interest in Treasury securities, so the payment does not necessarily mean money has left the federal government.
Social Security's special issues, for example, pay interest at the end of June and December, and when securities are redeemed. This payment schedule can produce large changes from one month to another. See Social Security's explanations of special issues, interest payments, and trust fund operations.
Together, these categories make up gross interest on Treasury debt securities. Because one records interest as it builds up and the other records payments or credits, their combined amount is not a measure of cash paid to investors during the period.
Why gross interest differs from net interest
Gross interest describes Treasury's interest expense on its debt securities, including interest credited to government accounts. The federal budget also reports net interest, which accounts for interest received by the government and other interest transactions.
Payments within the government matter here. When Treasury pays interest to a federal trust fund, Treasury records a cost and the fund records income. Those internal amounts offset each other when the federal budget is viewed as a whole.
Two views of interest costs
Measure
What it shows
Where it appears
Gross interest on Treasury debt securities
Treasury's recorded interest expense on public and special issues, including interest paid within government.
The budget's interest costs after interest receipts and other adjustments, including offsets for payments within government. This is the measure used to describe interest's contribution to the federal deficit.
Net interest is more than gross interest minus Special Issues. It also reflects other transactions, such as interest paid on tax refunds and interest received on government loans. The Congressional Budget Office's guide to net interest explains these components.
Another term sometimes used is the primary deficit: the deficit with net interest costs removed. It shows whether revenue covers the government's other spending before the cost of interest.
The reporting period matters. The federal fiscal year runs from October through September. A year-to-date amount covers the months elapsed so far, rather than a full year.
Payment timing can move monthly totals. A large interest payment in one month does not, by itself, show that borrowing costs suddenly rose. Comparisons covering the same months in different years provide more context.
Expense and cash payment are different. The public-issues category includes interest earned during the period even when it has not yet been paid.
Gross and net figures answer different questions. Gross interest explains Treasury's debt expense. Net interest shows the interest cost included in the overall budget deficit.