The federal government borrows trillions of dollars. Investors earn interest, taxpayers help finance government spending, and future generations may inherit the obligations.

But the real costs of borrowing aren't always visible. They may include investments never made, businesses never expanded, or government priorities left unfunded.

Who bears those costs—and what opportunities does America gain or give up in return?

Here's a puzzle: If Americans own most of the national debt, aren't we simply paying interest to ourselves?

The answer is partly yes—and partly no.

This isn't just a question for economists and bond traders. It matters to taxpayers, workers, retirees, business owners, and families trying to save for the future.

Who benefits from government borrowing, who bears its costs, and are they the same people?

The answers reveal how federal debt affects Americans differently—and why the choices made in Washington may influence opportunities that never appear in a government budget.

1. Who Owns America's Debt?

When Washington spends more than it collects, the Treasury borrows the difference by selling Treasury bills, notes, and bonds. Investors purchase these securities, lending money to the government in exchange for repayment and, usually, interest.

The buyers include banks, mutual funds, pension funds, insurance companies, individual savers, the Federal Reserve, and foreign investors.

According to the Congressional Budget Office's February 2026 report, about 70% of the $30.2 trillion in federal debt held by the public as of September 2025 belonged to domestic investors and institutions. Foreign investors held approximately 30%.

The Federal Reserve held roughly 16%, mutual funds 15%, and other private financial institutions 6%. Among foreign holders, investors in Japan held about 4%, the United Kingdom 3%, and mainland China 2%. CBO's detailed ownership breakdown uses data from March and September 2025.

Contrary to popular belief, China does not own most of America's debt. Neither do foreign investors collectively.

Many Americans also own Treasury securities indirectly through retirement accounts and investment funds.

But owning government debt isn't the same as financing its costs.

2. Aren't We Just Paying Ourselves?

Imagine the government collects $100 in taxes from one family and uses it to pay $100 in interest to another family holding Treasury bonds.

The money hasn't disappeared. It has moved from one household to another.

That's the reasoning behind the familiar argument that Americans owe much of the national debt to themselves.

But there are three important complications.

First, some payments go overseas. Interest paid to foreign investors becomes income for people outside the United States. Foreign lending also provides financing that can reduce borrowing costs, so its effects are not entirely one-sided.

Second, taxpayers and bondholders aren't necessarily the same people. Some Americans receive substantial interest income. Others receive little. Some both pay taxes and own Treasury securities.

Taxes can also affect people indirectly. For example, a tax collected from a business may be partly passed along to customers through higher prices or to workers through lower wages.

Third, inflation changes who benefits. Suppose you lend the government $1,000 at a fixed interest rate. If prices rise faster than expected, the dollars you receive later buy less than anticipated.

The government repays its fixed-dollar debt with money worth less than expected. The bondholder loses purchasing power.

The Federal Reserve Bank of St. Louis explains how unexpected inflation can shift wealth between borrowers and lenders.

None of this means bondholders receive something for nothing. They supplied money, gave up other possible investments, and accepted financial risk.

But the benefits and burdens of borrowing are not shared equally.

3. Two Kinds of Federal Debt: Who Owes Whom?

Here's a distinction worth revisiting because it explains why we hear different numbers for the national debt.

The federal government reports two main categories.

Debt held by the public is Treasury debt owed outside federal government accounts. It includes debt owned by American households, financial institutions, foreign investors, and the Federal Reserve.

Debt held by government accounts is money one part of the federal government owes another.

Consider Social Security.

When Social Security collects more in dedicated taxes than it needs to pay benefits, the surplus is invested in special Treasury securities. The Treasury uses that money to help finance government operations and promises repayment to the Social Security trust funds.

These securities are real government obligations, but they represent money owed between federal accounts rather than to outside investors.

Economists call this intragovernmental debt.

Add debt held by the public and debt held by government accounts together, and you get gross federal debt.

Why is the distinction important?

Suppose Social Security needs $100 to pay benefits and redeems $100 in Treasury securities. If the Treasury borrows that $100 from outside investors, publicly held debt increases while debt held by Social Security decreases.

Total gross debt remains unchanged, but the government now owes more to outside creditors.

That's one reason economists focus on debt held by the public when studying financial markets, borrowing costs, and the effects of federal debt on the economy.

Yet the obligations to Social Security remain meaningful: the Treasury must provide cash when benefits come due.

The Concord Coalition's Sorting Out the Debt Numbers explains these distinctions in greater detail.

4. What About the Federal Reserve?

The Federal Reserve, America's central bank, holds Treasury securities and receives interest on them.

But unlike ordinary private investors, the Fed may return some of its earnings to the Treasury after paying expenses and meeting other financial obligations.

These returned earnings are called remittances—simply money the Fed sends back to the government.

When the Fed has accumulated losses, those payments can stop until sufficient later earnings cover them.

So interest paid to the Fed isn't financially identical to interest paid to a private bondholder. Nor should we assume that all interest the Fed receives automatically returns to taxpayers.

The Federal Reserve explains these arrangements.

5. Gross Interest Versus Net Interest: Why Does It Matter?

When the government borrows money, it promises to pay interest to its creditors—just as a homeowner pays interest on a mortgage.

But the government reports different measures of interest expense.

Gross interest broadly describes interest paid on Treasury debt, including interest credited to government accounts such as Social Security.

Net interest is the measure used in the federal budget. It excludes interest payments between government accounts and offsets certain interest income received by the government.

Here's a simplified example.

Suppose Treasury pays $120 in interest: $100 to investors outside government accounts and $20 to the Social Security trust fund. Suppose the government also receives $5 in interest income that offsets its budgeted interest expenses.

Gross interest is $120. Net interest, in this simplified example, is $95.

Why? Because the $20 payment to Social Security moves money between government accounts, and the $5 in interest income offsets part of the remaining expense.

The Federal Reserve adds another wrinkle. When it sends earnings back to Treasury, those payments are generally recorded as federal revenue rather than directly deducted from net interest.

These accounting differences help explain why government reports can display different totals for interest payments.

But here's what matters to taxpayers.

According to CBO's February 2026 outlook, annual federal net interest costs are projected to grow from approximately $1 trillion in 2026 to $2.1 trillion in 2036, assuming current laws generally remain unchanged.

That's the recurring cost of servicing debt accumulated through earlier borrowing—not repayment of the original principal.

Interest payments do not directly provide new government services. They compensate creditors who previously lent money. Those creditors may be Americans or foreigners, and the original borrowing may have financed valuable projects or current expenses.

As interest costs grow, Washington faces more difficult choices.

It can collect more taxes. It can reduce other spending. It can borrow more, adding to future obligations. Faster economic growth can also help make debt more manageable.

Consider what this means for families. Higher taxes can reduce take-home income. Reduced public spending may affect services people value. More borrowing may influence interest rates, business investment, and future economic growth.

The important question is how much of America's future income must be committed to financing past decisions—and what choices that leaves for tomorrow.

For additional background, see the Congressional Budget Office's Federal Net Interest Costs: A Primer.

6. Are Our Children and Grandchildren Paying?

Future Americans will inherit government debt. But they may also inherit Treasury bonds as assets, along with roads, scientific discoveries, public institutions, and other benefits financed by past borrowing.

Government borrowing isn't automatically harmful.

Borrowing that pays for useful investments may generate benefits lasting for generations.

But borrowing that finances today's consumption can leave future taxpayers with obligations without producing equivalent future benefits.

The Concord Coalition's Passing the Buck: How the National Debt Burdens Future Generations explores how federal borrowing can shift burdens across generations.

Economists disagree about exactly how these burdens should be measured. Much depends on who owns the debt, interest rates, economic growth, and what the borrowed money finances.

The question remains: Are we creating valuable opportunities for future Americans, or leaving them greater obligations without corresponding benefits?

7. The Opportunities We Don't See

Perhaps the least visible costs of government debt are the opportunities that never materialize.

Economists call these opportunity costs: the benefits we give up when we choose one use of limited resources over another.

Consider what happens when government borrowing grows.

Investors receive interest on Treasury securities. We can see those payments. We can also see the programs and projects financed with borrowed money.

But we may never see the factory that wasn't expanded, the technology that wasn't developed, the apartment building that wasn't constructed, or the public improvement that wasn't funded because resources were committed elsewhere.

These are possible consequences, not claims that any specific project was canceled because of federal debt.

When government borrowing puts upward pressure on interest rates, some businesses may postpone investments in equipment, research, or expansion. Economists call this crowding out.

Does that mean there's only a fixed amount of money available?

No. Banks can create credit, the Federal Reserve influences financial conditions, and foreign investors can supply additional financing.

But the economy's real resources—workers, machinery, materials, and productive capacity—are limited at any given time. Creating more money doesn't automatically create more factories, skilled workers, or valuable goods.

When government borrowing discourages productive investment, workers may have less equipment or technology to work with. Over time, that can slow productivity growth and restrain wages.

Crowding out is not inevitable in every economic situation. During a recession, when workers and factories are idle, government spending may increase employment and production without displacing much private investment.

The Congressional Budget Office has examined these long-term economic effects.

But opportunity costs aren't limited to private businesses.

There are public opportunities we may lose, too.

Every dollar devoted to interest is a dollar unavailable for another federal priority unless the government collects or borrows more.

Those priorities might include transportation infrastructure, medical research, education, or programs intended to make health care and housing more affordable. Alternatively, the money could remain with taxpayers to spend, save, or invest themselves.

However, higher spending does not automatically produce better results. More housing subsidies may do little to improve affordability if restrictions prevent new housing construction. More health care spending doesn't automatically mean better health outcomes.

The issue isn't simply government spending versus private spending.

The issue is whether scarce resources are being put to their most valuable uses—and whether the benefits justify what Americans give up.

Government borrowing can also create opportunities. A well-designed infrastructure project may make transportation cheaper for businesses. Scientific research may produce discoveries that private companies turn into useful products. Such public investments can sometimes encourage additional private investment rather than crowd it out.

What matters is the value created, the cost incurred, and the alternatives sacrificed.

8. So Who Really Pays—and Why Should Americans Care?

The national debt is not a bill divided equally among Americans.

Some people receive Treasury interest. Others help finance those payments through taxes or bear indirect economic costs. Some Americans do both. Foreign investors receive part of the income, while future generations may face consequences from today's decisions.

Why should anyone care about these differences?

Because they help answer three questions every citizen has reason to ask.

Who benefits when Washington borrows and spends?

Who ultimately bears the costs—including those that never appear directly on a tax bill?

And what does the country receive in return?

A government can borrow to build infrastructure, support research, or respond to emergencies. Such spending can create valuable benefits.

It can also borrow to finance current consumption while leaving future taxpayers with greater obligations.

The question is not simply whether government borrowing is good or bad. It is whether the benefits justify the financial and economic costs, whether those costs are shared fairly, and whether the resulting debt can be sustained.

Our October 9 article, Government Debt Pays Investors—but What Does It Cost America?, examined how excessive borrowing can affect investment and economic growth.

This article asks who receives the benefits and who carries the burden.

The national debt isn't just about what America owes. It's about who benefits today, who may pay tomorrow, and what opportunities are created—or lost—along the way.

Understanding those differences is essential to holding government accountable for how it uses the nation's resources and how its decisions shape America's future prosperity.

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Join the Discussion: October 21

The Raleigh Economics Club welcomes Dr. Carolyn Bourdeaux, Executive Director of the Concord Coalition, for Chart Talk: Solving the Federal Debt Crisis.

Wednesday, October 21, 2026 | 11:30 AM–1:00 PM

Cantina 18, 433 Daniels Street, Raleigh, NC

Watch Dr. Bourdeaux's Carolina Journal interview, beginning at 19:18.

Event details and registration.

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Sources are linked throughout the article, including the Congressional Budget Office, the Federal Reserve, the Federal Reserve Bank of St. Louis, and the Concord Coalition.