Fiscal Policy & Markets
New · August 2026
The Debt Doesn't Stay in Washington
Washington borrows. Kansas pays part of the price.
“The debt stays in Washington.
The price of money doesn’t.”
Washington borrows. Kansas pays part of the price.
“The debt stays in Washington.
The price of money doesn’t.”
Federal debt crossed $40 trillion on Wednesday, the kind of number that’s about as easy to picture as a mile of dominoes. That same day, Treasury Secretary Scott Bessent ramped up debt buybacks in the long end of the bond market, and yields dipped. By Friday the dip was gone. The 30-year Treasury bond was back near its highest yield since 2007, and markets went right back to charging what they felt like charging.
You can manage how you borrow. You can’t manage what the market decides to charge you for it.
You can manage how you borrow. You can’t manage what the market decides to charge you for it.
And whatever you’ve been told, today’s deficit isn’t the result of historically low federal revenue. Federal tax collections this year are projected at 17.5 percent of GDP, a hair above the 50-year average of 17.3. Spending is projected at 23.3 percent, well north of its own 50-year average of 21.2. That 2.1 percentage-point difference amounts to roughly $670 billion a year at the current size of the economy. The deficit itself is running at 5.8 percent of GDP, against a 50-year average of 3.8.
Before you picture a warehouse full of bureaucrats ordering extra staplers, though, the overrun isn’t discretionary spending. That’s actually running below its historical average, 5.9 percent of GDP against 7.8. It’s mandatory spending and interest. Entitlements are running at 14.2 percent of GDP against an 11.2 percent average, while net interest is at 3.3 percent against 2.1 historically.
The structural imbalance was decades in the making — benefits promised, formulas enacted, and an aging population putting increasing pressure on programs designed in another era. The pandemic then normalized deficits that once would have been associated with emergencies. The emergency ended. The borrowing didn’t.
Federal borrowing isn’t the only thing moving interest rates. Inflation expectations, Federal Reserve policy, economic growth, and global demand for Treasuries all matter. Washington doesn’t run this show alone. But the Treasury is putting an enormous volume of debt into a market that has to absorb it somehow. The more long-term Treasury debt investors are asked to absorb, all else equal, the more return they’ll demand to hold it. Washington is a very large customer showing up in the world’s capital market asking for a bigger table, and eventually the maître d’ starts charging for it.
That matters because Treasury yields help set the benchmark price for long-term money in America. Borrowing costs across the economy are priced off it. The debt gets issued in Washington. The interest rate does not stay there.
When spending outruns revenue, government has three honest choices: tax more, spend less, or borrow the difference. Borrowing is politically easier because it postpones part of the bill. Future taxpayers inherit the debt. But that doesn’t mean the rest of us wait until then to start paying for it.
We are paying already.
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Net interest on the federal debt is projected at roughly $1 trillion this year. That trillion dollars builds no new road, buys no new aircraft, and funds no new research. It pays for decisions that were already made.
And the cost doesn’t stop at the Treasury. A $250,000 mortgage at 3.5 percent runs about $1,120 a month in principal and interest. The same mortgage at 7 percent runs about $1,660. Same house, same loan, same family — about $540 more a month because the price of money changed underneath them while they weren’t looking.
A manufacturer in Wichita eyeing a new production line has to earn enough to justify its financing cost. Raise that hurdle and fewer investments get made. The machine doesn’t get bought. The productivity gain doesn’t happen. The jobs it might have created never materialize. Nobody sends a letter explaining any of this. It just quietly doesn’t happen.
Kansas cities, counties, school districts, and the state itself borrow for roads, sewers, and buildings, and they borrow in a market whose price Washington helps set. Kansas can’t finance itself indefinitely by issuing the world’s reserve asset, a privilege available to exactly one government on the planet, and it isn’t headquartered in Topeka. Existing fixed-rate debt doesn’t reprice overnight. New debt does. The Department of Transportation alone expects to issue somewhere between $200 million and $400 million in new-money bonds in each of fiscal 2027 and 2028, and every one of those bonds will price against the market that exists on the day it’s sold, not the market Kansas enjoyed back in 2020. That’s exactly why “we’ll just bond it” deserves more scrutiny at the Statehouse than it usually gets, whether the project is a road, a prison, or a school building.
Nobody in Kansas gets a statement in the mail that reads: Your share of the federal deficit: $_____. The cost shows up somewhere else instead — in a mortgage payment, in the cost of financing a new subdivision, in the interest line on a municipal bond, in the factory expansion that becomes too expensive to finance and quietly gets shelved, in a school budget with a little less room than it ought to have.
And here’s the part we tend to miss. We talk about the debt as something we’re handing our children. We are. But that framing lets us off the hook too easily, because it isn’t only their bill. Future generations inherit the debt itself. We pay for the borrowing now — through federal interest, through more expensive financing, and through investments and jobs that never happen. Then we hand the debt down anyway.
The debt stays in Washington. The price of money doesn’t.
The Chiefs Don’t Escape the Price of Money Either
The same principle applies to Kansas’s stadium deal with the Chiefs.
The deal leans heavily on STAR bonds — bonds repaid from designated future tax revenues rather than the State General Fund. They aren’t general obligations of Kansas, so taxpayers aren’t backing them with the state’s full faith and credit. But somebody still has to buy them, and whoever does still wants to be paid for the privilege.
A STAR bond lets Kansas turn tomorrow’s tax revenue into money it can spend today. But the price of money matters here too. When investors demand a higher return, the same stream of future tax revenue supports less borrowing today. If Kansas still wants to raise the same amount for the stadium, something has to give: more future revenue has to support the bonds, the financing structure has to change, or the amount raised has to fall.
One thing to watch is the size of the STAR bond district. Expanding it is one way to capture more future tax revenue to support the financing. If rates stay high, don’t be surprised if the pressure is toward a larger district, not a smaller one.
Same stadium. Same construction bill. More of tomorrow’s tax revenue committed to financing it.
That leaves Kansas with two separate risks: Will the district actually generate genuinely new taxable activity, rather than simply shifting spending in from elsewhere in Kansas, enough to justify the revenue pledged against it? And what will investors charge Kansas to borrow against that revenue in the first place?
If projected tax revenues disappoint while investors demand higher yields, the risks compound: a smaller-than-expected revenue stream has to support more expensive debt.
The stadium hasn’t gotten any bigger. The financing bill has.
Josh Dambacher is a fifth-generation Kansan, a Managing Partner at a leading international law firm, and a member of the Board of Literacy Partners. He writes The Plains Ledger.
— J.D.
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