This week, three numbers, one fiscal year. The Congressional Budget Office projects $1.1 trillion in net interest on the national debt in fiscal year 2027. The Pentagon is asking for $1.5 trillion. And in Dallas on September 9th, the president promised every adult citizen $5,000 if Republicans hold Congress. Multiply it out and that is roughly $1.2 trillion, about the size of the interest bill.

Host Steve Ellis is joined by TCS Director of Research and Policy Josh Sewell and policy analyst Gabe Murphy. Josh explains what net interest is, why it is climbing, and what $3 billion a day crowds out. Gabe breaks the Pentagon request into its three parts, scores what Congress has actually done with it, and walks through the top items in the TCS and Project on Government Oversight report identifying more than $500 billion in cuts: Golden Dome, the Sentinel ICBM, and the Trump-class battleship.

Plus: what tariffs have actually brought in, how a $1.5 trillion Pentagon baseline feeds the interest bill, and what taxpayers should watch for when the continuing resolution expires December 11th in a lame-duck Congress.

Two of those numbers Congress gets to vote on. The third one, we all just pay.

Announcer (00:02):00:02

Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget, spending, and tax issues facing the nation. Cut through the partisan rhetoric and talking points for the facts about what’s being talked about, bandied about, and pushed in Washington, brought to you by Taxpayers for Common Sense. And now the host of Budget Watchdog AF, TCS President Steve Ellis.

Steve Ellis (00:41):00:41

Welcome to All American Taxpayers Seeking Common Sense. You’ve made it to the right place. For 30 years, TCS, that’s Taxpayers for Common Sense, has served as an independent nonpartisan budget watchdog group based in Washington, DC. We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are on the political spectrum, no one wants to see their tax dollars wasted. It’s September 2026. The Congressional Budget Office says that the budget deficit is $2 trillion, with still a month to go in the fiscal year. Starting October 1st, the government will be running on a continuing resolution through December 11th. The Pentagon’s one and a half trillion dollar budget request is on hold. Not dead, on hold. So today we asked a question we ask Congress every time a big number lands, as compared to what? The Congressional Budget Office says the federal government will spend $1.1 trillion in fiscal year 2027 on net interest on the national debt.

(01:42):

Not a program, not a ship or a plane, the cost of money we already borrowed. We are paying for the cost of money we already borrowed. The very same year, the Pentagon is asking for one and a half trillion dollars. And on September 9th in Dallas, the president promised every adult citizen $5,000 if Republicans hold Congress. Multiply it out, about 245 to 250 million adult citizens in the United States, and that’s roughly $1.2 trillion, about the size of the interest bill. Four numbers, one year. Josh Sewell has the interest side, Gabe Murphy has the Pentagon side. Josh, Gabe, welcome back to Budget Watchdog AF.

Josh Sewell (02:28):02:28

Thanks, Steve. Always good to be here.

Gabe Murphy (02:30):02:30

Thanks, Steve.

Steve Ellis (02:31):02:31

Josh, let’s start with you and let’s start with the number itself. CBO’s baseline puts net interest at $1.108 trillion in fiscal year 2027. What is that exactly? What’s in it? What’s not? And why do we say net?

Josh Sewell (02:50):02:50

So it’s the bar tab for our country’s debt addiction. And we use net because the government in fact charges interest on a bundle of lending programs, most notably student loans, and the government also owes itself money. But if you cut through all that, net interest is essentially what we as taxpayers pay the public, whether that’s individual investors, hedge funds, foreign central banks, to lend the government money.

Steve Ellis (03:14):03:14

And actually this net is also because we have these intergovernmental loans too, where for years Social Security ran a surplus and we borrowed money from Social Security and we owe that money back to Social Security with interest, which is why this is going to get even more scary in the next decade because basically everything that we’ve already owed it will be paid and then it’ll be running a deficit. But that’s a subject for another podcast. All right. This forecast isn’t just waiting to come true. It’s already happening, right? CBO’s monthly review through August, 11 months of fiscal year 2026, has net interest at $1.052 trillion, about half the deficit in that same amount of time. Interest is up 12% over the same stretch last year. CBO says two reasons, the debt is bigger and long-term rates are higher. Which of those two is doing more work, Josh?

Josh Sewell (04:14):04:14

Well, honestly, both oars are pulling pretty equally. So debt used to be cheap, so to speak. I mean, when interest rates were low. So think about this, in response to the housing bubble and 2008 economic crash, then again during COVID, you had these times where interest rates cratered as borrowing demand cratered.

Steve Ellis (04:34):04:34

Right. Borrowing costs went down close to 0% and there was even discussion of negative rates where investors who wanted the stability and the security of US government’s debt actually would end up pulling out less money than they put in.

Josh Sewell (04:48):04:48

Yeah. And so in that environment, we as a country piled on debt. So the 2009 stimulus, war financing for decades, Trump One tax cuts, COVID response, parts of Biden’s stimulus bill, you name it, you just piled it on. All those things added debt at what was actually relatively low interest costs. And actually we say relatively, they were literally low interest costs. There was nothing relative. They were close to zero for a time, but then interest rates started rising. So now you have right now high interest on any new debt that we accumulate and we have a massive pile of principal on which we are paying higher interest as we roll over that debt. So two oars equally rowing us toward ruin. Sorry to go so dark.

Steve Ellis (05:31):05:31

As you said, rolling over that debt, I mean basically every day some of that debt comes due and needs to be refinanced. Bonds that were issued 30 years ago are coming up to be due. And then what was at a low interest rate bond now becomes a high interest rate bond or relatively high interest rate bond. Okay, Josh, so let’s put the two fiscal year 2027 numbers side by side. Interest $1.1 trillion. The Pentagon request, $1.5 trillion. So the request is about a third bigger than the interest bill and the interest bill is about three quarters of the request. Is that a fair way to hear it? And what’s the version of that comparison you’d actually want a member of Congress to remember?

Josh Sewell (06:19):06:19

Yeah, I mean I think it’s fair, but really it’s pick your poison. Whatever you want from the government, compare it. Healthcare for veterans, the interstate system, transition to renewable energy, some new program I haven’t thought of, you name it. And net interest is a bigger program than everything in the discretionary budget outside of defense. And even then it’s getting pretty darn close and that’s all almost entirely for past spending.

Steve Ellis (06:46):06:46

So Josh, break the interest number into something a person can picture. $1.1 trillion a year is about $3 billion a day, roughly $126 million an hour. That’s before the government does anything. What does that crowd out?

Josh Sewell (07:00):07:00

So here’s how I think about a trillion. Most of us won’t see a trillion of anything in our lifetime, right? That’s fair to say. So if you gave me a dollar every second, at the end of the first year, I would have 31 and a half million dollars. So that’s $1 per second. It’s pretty good. I mean, it’s really good for me, but it would take more than 31,000 years for my payoff of a dollar a second to get to a trillion. If the government is paying that much in interest, which again, it will only grow until we get our fiscal house in order, that’s less money for literally everything else in the budget.

Steve Ellis (07:36):07:36

All right, Gabe, you’ve been waiting patiently, so let’s go to you. Here’s your turn. Speaking of everything else, one and a half trillion dollars for the Pentagon. Walk me through how that number is built because it isn’t one number, it’s three.

Gabe Murphy (07:52):07:52

The base discretionary budget request, which is about $1.15 trillion for national security, and then we also have this reconciliation request of $350 billion. And then on top of that, they’ve thrown in a request for some supplemental funding for the Iran war. So really it’s closer to 1.6 that they’re asking for in total this year.

Steve Ellis (08:13):08:13

All right. Well, help us put this into context for listeners. Fiscal year 2026, Pentagon spending or national security spending was about $900 billion, plus the $156 billion Congress put in through the reconciliation bill, the One Big Beautiful Bill Act that everybody knows about. What’s the real increase here in one year adjusted for inflation?

Gabe Murphy (08:38):08:38

I’ll get to inflation in a second, but just looking at the actual dollars first, about 450 billion is the increase or a 45% increase over last year when you include reconciliation spending and the request for both years. Looking at just the discretionary budget, the Pentagon’s base budget, they want a $250 billion increase, about 27% in that base budget, which excludes reconciliation in both years. Now, inflation is around 3.4%. So this isn’t just a cost of living adjustment they’re asking for. They’re asking for actually about 13 times that.

Steve Ellis (09:11):09:11

So what’s the status of this, Gabe? I mean, because $1.5 trillion is a request and Congress has been chewing on it since April when the president finally submitted his budget. And the House of Representatives passed their National Defense Authorization Act 216 to 212 in July, and that had $1.15 trillion. Senate cloture on their version of that same bill failed 50 to 46. The House Budget Resolution offered $60 billion in reconciliation, not $350 billion. And now a CR through December 11th is pegged at last year’s discretionary budget level. I know that’s a lot of numbers there. Score it for me. What of the $1.5 trillion actually exists today?

Gabe Murphy (10:02):10:02

Well, technically none of it because the appropriations bills where Congress actually spends money still haven’t been finalized. That said, with the CR now on the books, which will go into effect on October 1st, the Pentagon will have the ability to start spending money on October 1st at FY26 levels, which will give them a lot of flexibility to pay for at least immediate needs.

Steve Ellis (10:24):10:24

And that doesn’t include that extra reconciliation money that they got last year. So speaking of reconciliation, what about the reconciliation gambit that I mentioned for getting an additional $350 billion to the Pentagon? Republicans have passed two reconciliation packages this Congress. Is there an appetite for a 3.0 out there?

Gabe Murphy (10:49):10:49

Well, certainly among some lawmakers there is still appetite, but I do think the path to actually enacting this is looking increasingly unlikely. For one, they have the clock to worry about, right? The House was supposed to be in town for just one week this week before the election, but then they wrapped up votes last night and skipped town again. So after the election, they theoretically have the time to move perhaps one reconciliation bill, but there are other dynamics at this point that also make it tough. I think the politics here with the midterms, they may take some pressure off of Republicans who were loath to pay for reconciliation with cuts to domestic spending right ahead of an election. But the reality of the lame duck is you have a bunch of lawmakers who are retiring or who will have just got voted out, some of whom will already be moving out of their Capitol Hill offices.

(11:43):

And with the margins Republicans have, they will have a lot of trouble, I think, getting to a simple majority.

Steve Ellis (11:48):11:48

Oh, Gabe, do you actually think that they would try to pay for those reconciliation spending?

Gabe Murphy (11:58):11:58

Well, to be clear, in the resolutions that the House passed at least and that the Senate advanced, they don’t have pay fors in there, but that’s only for the 60 or 100 and some odd billion that they were looking at there, not the full 350. I think for them to get anywhere close to 350, they would need to have pay fors for it to be politically even plausible.

Steve Ellis (12:19):12:19

All right. So what about other funding streams?

Gabe Murphy (12:26):12:26

Well, some have raised the prospect of a supplemental war spending bill and passing that the normal way, not through reconciliation, which is what the House Budget Resolution basically attempted to tee up. And that would require support from some Democrats. They would need 60 votes at least in the Senate. And I think the Democrats have been pretty clear that that’s just not going to happen for an unauthorized war with no coherent strategy. So it’ll likely come down to what appropriators hammer out either by December 11th when continuing resolution expires or next year if they opt to pass another continuing resolution. So assuming we’re right about reconciliation and an actual supplemental being pretty much toast, I don’t want to say they’re entirely dead yet because they could happen. Assuming we’re right about that, the best case scenario from the Pentagon’s perspective is probably getting somewhere between one trillion and 1.1 trillion in base spending with no additional spending.

(13:24):

I think from a taxpayer perspective, best case scenario is probably somewhere below $1 trillion, hopefully much closer to the 900 billion they got last year. I mean, looking at inflation, 930 billion or so would roughly cover it.

Steve Ellis (13:38):13:38

So Gabe, I was joking with you about offsets, but we actually put our money where our mouth is. And in July, we published a joint report with the Project on Government Oversight, which included more than $500 billion in specific cuts to this request program by program without touching military pay or military facilities like barracks. Give me the top three items.

Gabe Murphy (14:05):14:05

So I’ll lay them out, but just to clarify, it wasn’t even just the pay and barracks that were exempted. We only looked at procurement and research and development. So we didn’t look at any operations and maintenance. I think when people look at the Pentagon budget, there’s a lot of different pots. We really focused on the acquisition for programs and cuts to programs that we feel are just wasteful. So top three, Golden Dome is right at the top of that list. We’re talking in this budget request, $17.7 billion in taxpayer savings on the table if we scrap this. Looking at the program as a whole, based on what the president laid out in his executive order for Golden Dome, I mean, we still haven’t seen an actual architecture, at least the public hasn’t for this program. But based on what he laid out, a program that can defend the entire United States against nuclear weapons, according to the American Enterprise Institute, that would cost about $3.6 trillion over 20 years and still not give us 100% assurance that we can defeat a nuclear attack.

(15:07):

So we wrote a report earlier this year looking at some of the problems here with this program. It’s simply unviable as a defense against nuclear weapons. There are some legitimate missile defense needs in this country, and I think we’ve seen the missile defense in theater used in the Iran war, although certainly there are some questions about the cost effectiveness of that when interceptors are costing millions of dollars a pop. Then there’s also the strategy to consider here, right? I mean, Golden Dome, a missile defense shield, incentivizes Russia and China to ramp up their nuclear weapons spending and capabilities, and that does not make the world safer. Beyond that, there’s also just major conflicts of interest. I mean, the whole program is, we’ve seen already a lot of contracts go to folks that have ties to the Trump administration and that help pay for their campaigns.

(15:56):

So I think there’s a lot of problems with that. Next program, the Sentinel ICBM, that’s $4.7 billion taxpayers could save this year alone. Looking at costs for this, I mean, a couple years back, this program had a 37% cost overrun. Rather than scrapping it at that point, the Pentagon was forced to take a look at it by law and actually said, “No, we’re going to keep doing this, but now it’s going to be 81% over budget.” By the way, we filed a FOIA request, Freedom of Information Act request over two years ago for the documents around that decision, which shouldn’t have been classified or anything, and we still haven’t gotten a look at their rationale for that. As far as we’re concerned, we should just get rid of the whole land-based leg of the nuclear triad. So intercontinental ballistic missiles, whether it’s the Minuteman III that we currently have or this new Sentinel program.

(16:44):

It’s the most vulnerable leg of the triad. Everyone knows where these silos are, and we have more than enough firepower on our subs and bombers to ensure nuclear deterrence. Now, lastly, I just want to take a moment to talk about the Trump class battleship. They want a billion dollars this year, so that’s a billion dollars taxpayers could save by not spending it. CBO projects that the fleet of these ships could cost taxpayers about $275 billion. The first ship alone could cost over $23 billion. So the cost is astronomical. As far as what the Navy wants, this is entirely antithetical to everything they’ve been asking for, which is pretty much a nimbler, more distributed fleet. And I think that’s because with the advancement of things like hypersonic missiles, we know that in the event of a major conflict with a peer or even a near peer adversary, a huge battleship like this would just be a massive target.

(17:38):

So either it’s going to sit in port being useless or it’ll get sunk. And by the way, this billion dollars they want to spend on this, they haven’t even finished the design yet, which is the same approach that led to the F-35’s abysmal readiness rate, which also, by the way, is—

Steve Ellis (17:54):17:54

So Gabe, I see a pattern here. What they all have in common is exceedingly costly, unnecessary, and in many ways, counterproductive programs that will not only fail to improve national security, but will actually undermine it by, among other issues, adding to the now $40 trillion in federal debt. All right, Josh, the third number, $5,000 to every adult citizen if Republicans hold Congress after the elections. Nobody in the administration has put a total on it, so let’s do the arithmetic on air. How many adult citizens are there and what does that come to?

Josh Sewell (18:34):18:34

Well, as you said earlier, it’s about 245 to 250 million adults, multiply that by five grand, and that’s roughly 1.2 trillion. It’s insane. I have enough gray hair in my beard to remember when a trillion actually scared politicians.

Steve Ellis (18:48):18:48

So Josh, what we’re talking about is a one-time check that in total will cost about what we pay in interest for the year. The stated funding source is tariffs, unless it’s something else. And what have tariffs actually brought in and what does CBO or anyone else expect them to bring in next year?

Josh Sewell (19:11):19:11

Well, diddly. I mean, through August, it’s $167 billion has been generated from customs duties, which is the term for tariffs, and that is net. So after accounting for 110 billion in refunds made because the increased tariffs were ruled unconstitutional, at least the first set. And so there has been an increase in customs duties, depends on your timeframe, 10 to 30%, but that’s not going to make up trillions of dollars. There’s no way, there’s not the appetite or even the mechanisms really to increase taxes through tariffs sufficiently to take care of this kind of spending.

Steve Ellis (19:51):19:51

Gabe, Josh, here’s where the two halves meet. If Congress gives the Pentagon the full one and a half trillion dollars and that becomes the new baseline, that’s basically nearly $7 trillion in extra spending over the next 10 years. That money is borrowed. So the Pentagon number doesn’t sit next to the interest number, it feeds it. How much interest does one and a half trillion dollar baseline generate on its own?

Gabe Murphy (20:20):20:20

Well, based on CBO’s current interest rate projection of 3.4%, I think it’s about $50 billion.

Josh Sewell (20:26):20:26

Yeah, but remember, interest rates are rising, so brace for greater impact.

Steve Ellis (20:31):20:31

Nice tag team, gentlemen. Gabe, the Pentagon argument is that this is what security costs. Our argument going back more than a decade is that the debt itself is a national security problem. Money spent servicing debt can’t be spent on the military. When interest is $1.1 trillion and climbing, what does that do to the Pentagon’s own future?

Gabe Murphy (20:57):20:57

Well, it cuts into the amount of funds available across the budget for actual priorities, including national security. So either you keep feeding the debt monster and it eventually devours us, or you cut deeper and deeper into domestic spending, which when you think about a holistic vision for national security, it’s part of the equation too. I’ll also just contest the notion that this request is really the price of security and argue the opposite in fact, that rejecting it is actually critical for security, not just because of the debt, but also because of munitions. We have a real munition shortfall from this war. That is a real problem, but it’s going to take years to address. So counterintuitively, the most important thing Congress can do right now to address it is actually hitting the brakes on the ongoing use of our remaining stockpiles by reining in this unauthorized war against Iran.

(21:49):

Neither the political fallout of this conflict nor Congress passing war powers resolutions in both chambers have achieved that. So Congress needs to turn to the only real tool it has left to rein in the war, and that’s the power of the purse.

Steve Ellis (22:02):22:02

All right, last one, and I want both of you in on it. The continuing resolution that’s going to start on October 1st runs until December 11th. That’s obviously after the midterms. When Congress comes back to this, it will have a lame duck session, as we’ve discussed, a one and a half trillion dollar request, a $350 billion reconciliation ask as part of that, a war supplemental, possibly a $1.2 trillion dividend the president has promised, and an interest bill that went up while they were gone. Josh, what should taxpayers look for in December? And Gabe, same question.

Josh Sewell (22:46):22:46

Attempts to pass the buck. There may be temptation to shove through more spending, we’ll call it that, and even a debt ceiling increase, which we didn’t talk much about, all while leaving the next Congress to deal with the consequences. But we all have to pay for this eventually, so we do need folks to be held accountable. And Gabe’s not naive, he’s principled and an optimist. He works at TCS after all. Margins are tight and not every member that is leaving will want to make massive debt spending their final act, not Mr. Roy, I don’t think Mr. Golden. So there’s some bipartisan interest in this moving forward.

Gabe Murphy (23:19):23:19

Yeah. Well, what I’m looking at in December,

(23:22):

I think there’s a number of things that we’ve covered. For one, I think it’s really critical that Congress reject any supplemental war package for an unauthorized, ill-advised war. Second, I think it’s really important that both appropriators and authorizers hold the line against the discretionary $1.15 trillion top line request. Part of the reason the Senate rejected the NDAA earlier this year, in fact, I would say the single largest reason was the top line, and nothing has changed since then. In fact, things have gotten worse. Prices are still rising. The president has talked about potentially escalating this war after the midterms. So I think Congress needs to hold the line in both appropriations and the National Defense Authorization Act, which is not where the real money is spent, but it does send a really bad signal if Congress just votes for authorizing 1.15 trillion and it undercuts leverage and negotiations over the appropriations.

(24:18):

So I think across the board, lawmakers should just reject this massive increase for the Pentagon at this point.

Steve Ellis (24:25):24:25

Josh Sewell, Gabe Murphy, thank you both, and thank you for being here.

Josh Sewell (24:28):24:28

Yeah, always happy to do it, Steve.

Gabe Murphy (24:30):24:30

Thanks for having me on, Steve.

Steve Ellis (24:31):24:31

And there you have it, Budget Watchdog AF Faithful. The Pentagon wants $1.5 trillion next year. The interest on the debt will cost $1.1 trillion the same year, and that’s the estimate from before the war and before the bond market repriced. Plus, a $5,000 check for every adult citizen is about $1.2 trillion more, one more year of interest borrowed in one shot. Two of those numbers Congress gets to vote on. The third one, we just all pay. This is the frequency. Mark it on your dial, subscribe and share, and know this. Taxpayers for Common Sense has your back, America. We read the bills, we monitor the earmarks, and we highlight the wasteful programs that poorly spend your money and shift long-term risk onto taxpayers. We’ll be back with a new episode soon. I hope you’ll meet us right here to learn more.