The national debt’s burden is best measured by the debt-to-GDP ratio, which compares the total debt to a country’s annual economic output (Gross Domestic Product), and by the net interest payments on the debt as a percentage of GDP or total federal revenue. These metrics, rather than the total dollar amount, provide a clearer picture of the debt’s manageability and its impact on the economy, indicating a country’s ability to service its debt. 

Key Metrics:

• Debt-to-GDP Ratio: This is the most widely used measure to assess national debt’s burden. It shows how much a country’s debt compares to its annual economic output, similar to how a household’s debt-to-income ratio measures its financial capacity. 
• Interest Payments: The amount of interest the government pays on its debt, especially as a proportion of the national budget or GDP, is a critical indicator of the debt’s strain on the economy. 
• Federal Deficits: The annual budget shortfall (when spending exceeds revenue) is a key driver of the national debt, so tracking deficits as a percentage of GDP is also a way to gauge the growing burden. 

How to Understand the Burden:

• Analogy to Households: Just as a high debt-to-income ratio can make a loan unmanageable for a household, a high debt-to-GDP ratio can indicate a potential problem for a nation. 
• Economic Growth is Key: An economy’s ability to manage debt increases as its GDP grows, making the debt ratio a better measure of sustainability than the dollar amount alone. 
• Historical Context: The debt-to-GDP ratio for the United States is comparable to the levels seen during and immediately after World War II, but unlike the post-war period, the debt has not been reduced in recent decades. 
• Impact of Interest: As the national debt grows, the government’s interest payments increase, which can crowd out spending on other important areas and potentially slow economic growth. 

Consequences of National Debt

Rising debt imposes higher interest costs. The CBO expects the U.S. government’s net interest costs to triple over the next decade, reaching $1.2 trillion annually by 2032. This will force lawmakers to decide between running even larger deficits just to keep spending and revenue constant or some combination of spending cuts and revenue increases.

Bond buyers might require higher yields to compensate them for the resulting increase in risk if the choice is even larger deficits. Or they may not if slowing economic growth prompts investment flows into fixed income amid expectations of lower interest rates.

A large and growing national debt negatively affects the US economy by raising interest rates, which makes borrowing more expensive for individuals and businesses, leading to slower wage growth and potentially higher prices. It can also stifle private investment, reduce economic growth, and diminish confidence in the dollar’s status as a global reserve currency. In the long term, the debt necessitates future tax increases or spending cuts, which can further strain the economy and burden future generations. 

Here’s a breakdown of the specific impacts:

• Higher Borrowing Costs: As the government borrows more, it can increase demand for loans, which drives up interest rates. This makes it more expensive for individuals to take out mortgages or car loans and for businesses to borrow for investments. 
• Slower Economic Growth: Higher interest rates can reduce business investment and consumer spending, slowing down overall economic activity and leading to slower wage growth. 
• Increased Inflation: If the government prints more money to manage its debt, it can lead to increased inflation, making goods and services more expensive and reducing the purchasing power of American families. 
• Crowding Out Private Capital: High levels of government borrowing can “crowd out” private capital by competing for available funds, leaving less money available for private sector investment and innovation. 
• Reduced Global Economic Standing: A growing national debt can undermine confidence in the U.S. dollar, which is a dominant global reserve currency. This could lead to a loss of economic influence and advantages for the U.S. on the international stage. 
• Fiscal Burden on Future Generations: A large national debt requires future generations to either pay higher taxes or face reduced government services to cover the costs of past borrowing. 
• Increased Debt Limit Confrontations: The debt limit itself, a legal cap on the amount of debt the government can hold, can become a source of economic instability when politicians engage in “brinkmanship” over raising it. 

The Bottom Line

The national debt of a country represents the sum of past annual deficits and the total that it owes its creditors. Economists use the ratio of debt to a nation’s gross domestic product as an indicator of a country’s financial sustainability. The national debt in the United States is primarily held by the American public, followed by foreign governments, U.S. banks, and investors.

Measuring burden of debt

GDP is a measure of the total size and output of the economy. One measure of the debt burden is its size relative to GDP, called the “debt-to-GDP ratio“. Mathematically, this is the debt divided by the GDP amount. The Congressional Budget Office includes historical budget and debt tables along with its annual “Budget and Economic Outlook”. Debt held by the public as a percentage of GDP rose from 34.7% GDP in 2000 to 40.5% in 2008 and 67.7% in 2011. Mathematically, the ratio can decrease even while debt grows if the rate of increase in GDP (which also takes account of inflation) is higher than the rate of increase of debt. Conversely, the debt to GDP ratio can increase even while debt is being reduced, if the decline in GDP is sufficient. Because much of the debt that was incurred as a result of World War Two could not be passed onto American citizens who also had no money to spare, the debt was never addressed and continued to grow.

According to the CIA World Factbook, during 2015, the U.S. debt to GDP ratio of 73.6% was the 39th highest in the world. This was measured using “debt held by the public.” However, $1 trillion in additional borrowing since the end of FY 2015 raised the ratio to 76.2% as of April 2016 [See Appendix#National debt for selected years]. Also, this number excludes state and local debt. According to the OECD, general government gross debt (federal, state, and local) in the United States in the fourth quarter of 2015 was $22.5 trillion (125% of GDP); subtracting out $5.25 trillion for intragovernmental federal debt to count only federal “debt held by the public” gives 96% of GDP.

The ratio is higher if the total national debt is used, by adding the “intragovernmental debt” to the “debt held by the public.” For example, on April 29, 2016, debt held by the public was approximately $13.84 trillion (~$17.2 trillion in 2023) or about 76% of GDP. Intra-governmental holdings stood at $5.35 trillion, giving a combined total public debt of $19.19 trillion. U.S. GDP for the previous 12 months was approximately $18.15 trillion, for a total debt-to-GDP ratio of approximately 106%. An increasing and untreated national debt leads to a significantly diminished ability for the economy to operate at its highest level.

Complete Measures of U.S. National Debt

Explicit Debt

Figure 1 shows past growth in debt and Congressional Budget Office (CBO) debt projections.

Figure 1: Congressional Budget Office’s 10-year Debt-to-GDP Ratio Projections

Explicit federal debt results from past funding shortfalls under government policies. Annual deficits trigger borrowing from the public through Treasury securities. The government must use future receipts to pay interest and the principal. Each deficit year increases debt, requiring new securities to roll over maturing ones. Larger explicit debt means more future receipts devoted to debt service, reducing funds for public goods and services. The CBO reports explicit debt held by the public was $26.2 trillion at the end of 2023, rising to $28.2 trillion in 2024.

Implicit Debt

Implicit debt refers to projected shortfalls in receipts compared to non-interest expenditures under current policies. Unlike explicit debt, implicit debt is non-contractual but still a firm government obligation. Explicit debt can be eroded by inflation, except for about 7.8% issued as inflation-protected securities. Reducing implicit debt requires tax increases and expenditure cuts, as most program spending keeps pace with or exceeds inflation. Both types of debt require future federal resources for servicing. Larger explicit debt needs more tax increases and expenditure cuts, while larger implicit debt requires similar adjustments to current policies.

Figure 2 gives an example of implicit debt: Social Security and Medicare Hospital Insurance (HI) are funded by payroll taxes and income taxes on high-income individuals’ Social Security benefits. These programs’ expenditures are determined by eligibility policies and depend on factors like age structure, retirement decisions, and health. Revenues depend on employment and earnings in covered occupations.

Figure 2: Social Security and Medicare (OASDHI): Revenues and Expenditures as Shares of GDP

Projections indicate a social insurance funding shortfall of nearly 1% of GDP today, growing to 2.6% by 2050 and 4.6% by 2099. The shortfall, including taxes and benefits for current and future individuals, equals $65.7 trillion for those alive today.

Total Federal Indebtedness Measures

Focusing only on explicit debt is misleading due to significant underfunding of OASDHI programs. Adding explicit debt ($26.2 trillion) and implicit obligations ($65.7 trillion) brings total federal indebtedness to $91.9 trillion, or 340% of 2023 GDP. Extending tax and spending projections to cover all current and future generations, the infinite horizon fiscal imbalance is $162.7 trillion, or 6.6% of the present value of all future GDP.

Policy Adjustments Required to Eliminate the Fiscal Imbalance

Restoring fiscal balance will require reducing federal non-interest expenditures or increasing future federal receipts. This can be achieved in various ways, depending on the tax or expenditure bases targeted for adjustment. The broadest base is “taxes plus expenditures,” which involves an across-the-board immediate and permanent equal percentage reduction in non-interest expenditures and increase in receipts. The first row of Table 1 shows that this would require a 14.6% adjustment.

If the adjustment base is narrowed, the required percentage adjustment increases. Row 2 of Table 1 shows that targeting only taxes would require a 33.4% increase. Row 3 indicates that targeting all non-interest expenditures would require a 26.1% cut. Other policy adjustment variants show different combinations of tax and expenditure bases and their respective adjustment percentages.

The adjustment percentages shown in Table 1 are conventional estimates. They assume policy changes will not induce private economic reactions. For example, tax increases are assumed not to reduce labor supply, and reductions in Social Security or other transfers are assumed not to increase labor supply by individuals working longer hours or delaying retirement.

Table 1: Alternative Tax Increases and Benefit Reductions Required to Eliminate the U.S. FI

Distribution of Prospective Net Taxes Across Living and Future-born Generations

Dealing with federal indebtedness requires future resources, impacting the pocketbooks of current and future generations. To estimate this, we calculate baseline net tax payments for these generations under current policies.

Panel A of Figure 3 shows the present value of future net taxes for selected generations, labeled by age in 2024. For example, the Current Policy line shows that a 20-year-old in 2024 has an expected present value of future net taxes of $132,000. These calculations account for mortality rates and represent average actuarial amounts. Older generations are expected to receive net transfers (negative net lifetime taxes) over their remaining lifetimes.

Policy 1 (red lines and bars in Figure 3) involves increasing all federal taxes and reducing expenditures by 14.6%. Panel B shows the impact on individuals’ pocketbooks in constant 2024 dollars. A 20-year-old would pay $426,000, which is $296,000 more than the $132,000 under the current policy baseline. This represents a more than three-fold increase in lifetime net taxes. For a 60-year-old, net benefits would be reduced by $174,000, a 39% cut from their current-policy prospective net benefits of $443,000.

Policy 2 (green lines and bars in Figure 3) targets only taxes. Under this policy, future net taxes for 20-year-olds increase to $489,000, compared to $426,000 under Policy 1. For 60-year-olds, future net benefits decline to $321,000, compared to $269,000 under Policy 1.

Policy 3 (blue lines and bars in Figure 3) targets only federal expenditure. Under this policy, 60-year-olds’ remaining lifetime net benefits would decrease by $215,000, compared to $174,000 under Policy 1. For 20-year-olds, the adjustment burden would increase by $245,000, compared to $294,000 under Policy 1.

Figure 3: The Distributional Effects of Immediate and Permanent Fiscal Adjustments to Eliminate FI

Excluding expenditure-side adjustments would necessitate substantial increases in the lifetime net taxes of young and future generations. For example, a 20-year-old’s lifetime net taxes would increase by $357,000 if only taxes were increased, compared to $294,000 under the across-the-board adjustment in taxes and benefits. Compared to the across-the-board policy, an exclusive benefit-side policy change would reduce the adjustment on a 20-year-old from $294,000 to $245,000.

The reason for these results is that including adjustments to benefits distributes some of the adjustment cost to retirees, expanding the population that bears the adjustment cost. In contrast, excluding expenditure changes concentrates the adjustment burden on younger and future generations.

Policies 4 through 8 of Table 1 concentrate the adjustment on a subset of federal programs and age groups, resulting in larger adjustment rates. Their effects per capita are distributed according to the age groups subject to the taxes and benefits targeted for adjustment (not shown).

A Gradual Policy Adjustment

Applying an immediate and permanent across-the-board adjustment to federal taxes and expenditures of 14.6% to eliminate the fiscal imbalance may be infeasible in the short term. An alternative is to calculate annual adjustments to constrain the debt-to-GDP ratio to a predetermined percentage. Figure 3 shows the time profile of conventional annual fiscal adjustment rates for equal percentage increases in all taxes and cuts to all non-interest expenditures to maintain the debt-to-GDP ratio at its current 100% of GDP.

Figure 4: Tax and Expenditure Adjustment Rates to Stabilize the Debt-to-GDP Ratio at 100% Beginning in 2025

Under this policy, the adjustment rate will be small in the next few years due to small federal primary deficits (non-interest expenditures minus receipts). The rates will increase over time and plateau slightly above the 14.6% “full across-the-board” adjustment rate (Policy 1 in Table 1). This occurs because the debt-stabilization policy prevents the accumulation of budget surpluses in the short term that would have occurred under Policy 1. The adjustment rate is small in 2025, increases rapidly over the next two decades, and plateaus at an average of 17.1% in the long term.

The adjustment-rate profile in Figure 4 should be viewed with caution. Significant and lasting changes to taxes and expenditures are likely to induce changes in economic behavior, affecting labor supply, saving, investment, capital, the rate of technological advances, and GDP growth. These changes will affect the long-term adjustment profile.

Figure 5: Distributional Effects of Debt-Stabilization Policy

Figure 5 shows the distributional effects of the debt-stabilization policy compared to Policy 1 of Table 1. The gradual policy involves smaller adjustments to current retirees’ taxes and benefits, resulting in smaller adjustment costs for them since they receive substantial net benefits during their remaining lifetimes.

In contrast, younger and future generations would pay more in net taxes due to the higher final adjustment rate under the debt-stabilization policy. The distributional effects shown in Figure 4 should be considered rough approximations, as they assume no changes in future economic behavior by workers, savers, and investors.

Conclusions

Federal indebtedness extends beyond explicit debt reported in federal financial accounts. Under current fiscal laws and policies, the government must pay benefits to eligible individuals, but its receipts are projected to fall short of these obligations. A significant portion of federal (non-interest) payment obligations may be as strong or stronger than their obligation to service explicit debt. This generates implicit debt that, when added to explicit debt, increases federal indebtedness severalfold.

Including unfunded Social Security and Medicare (Part A) obligations for those living today places federal indebtedness at $103.2 trillion, or 4.7% of the present value of GDP projected over the next 100 years. Including unfunded obligations to future generations makes the federal fiscal imbalance $162.7 trillion, or 6.6% of the present value of GDP calculated without a time limit.

Restoring fiscal balance requires an across-the-board tax increase and expenditure reduction of 14.6%. Concentrating on taxes alone would reduce the adjustment cost for older generations and increase it for younger and future ones. Concentrating on the adjustment on federal expenditures alone would shift the burden away from younger and future generations toward current older generations.

Top 10 Reasons Why the National Debt Matters

At $37 trillion and rising, the national debt threatens America’s economic future. Here are the top 10 facts that explain why the national debt matters.

1. Trillion dollar deficits are now the norm. The Congressional Budget Office (CBO) projects that the U.S. government will run trillion-dollar deficits over the next decade, resulting in a cumulative deficit of $21.8 trillion between 2026 and 2035.
2. Interest costs are growing rapidly. Interest costs were $881 billion in 2024 and are projected to rise to $1.8 trillion by 2035. In 2024 alone, the United States spent more on net interest costs than it did on any federal program other than Social Security.
3. Key investments in our future are at a risk. Higher interest costs could crowd out important public investments that can fuel economic growth — priority areas such as education, research & development, and infrastructure. A nation saddled with debt will have less to invest in its own future.
4. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also can lead to increases in interest rates and inflation as well as erosion of confidence in the U.S. dollar. The federal government should not allow budget imbalances to harm the economy and families across the country.
5. Less flexibility to respond to crises. On its current path, the United States is at greater risk of a fiscal crisis, and high amounts of debt could leave policymakers with much less flexibility to deal with unexpected events. If the country faces a major recession or health crisis, it will be more difficult to recover.
6. Protecting the essential safety net. The unsustainable fiscal path threatens the safety net and the most vulnerable in American society. If the government does not have sufficient resources, essential programs like Medicaid and Social Security could be put in jeopardy.
7. A solid fiscal foundation leads to economic growth. A solid fiscal outlook provides a foundation for a growing, thriving economy. Putting the nation on a sustainable fiscal path creates a positive environment for growth, opportunity, and prosperity. With a strong fiscal foundation, the United States will have increased access to capital, more resources for private and public investments, improved consumer and business confidence, and a stronger safety net.
8. The national debt is a bipartisan priority for Americans. Nearly three out of every four voters agree that the national debt should be a top priority for lawmakers.
9. Many solutions exist! The good news is that there are plenty of solutions from which to choose. The Peterson Foundation’s Solutions Initiative brought together policy organizations from across the political spectrum to develop long-term fiscal plans to place the nation on a strong, sustainable fiscal footing.
10. The sooner we act, the easier the path. It makes sense to get started soon. According to CBO, addressing high and rising debt sooner rather than later means that smaller policy changes would be required to achieve long-term objectives. The benefits of reducing deficits sooner include a smaller accumulated debt and therefore less risk to long-term economic growth and stability. Like any problem, the sooner you start to address it, the easier it is to solve.

Addressing the national debt is an essential part of securing America’s economic future. These key fiscal and economic issues should be at the forefront of the policy conversation in Washington. Leaders should seize the opportunity to pursue reforms that will put the U.S. long-term fiscal outlook on a sustainable path.

Is rising US indebtedness a bad thing?

Having a huge national debt sounds like a bad thing, but it’s not casting a shadow over most Americans’ day-to-day lives right now. In the short term, government spending is continuing to generate economic activity, ranging from the buying of groceries with Social Security payments to the construction of massive infrastructure projects, all of which deliver benefits to people and communities and buoy economic growth.

However, the US Treasury projects the debt-to-GDP ratio will continue to rise—from 123% of GDP today to 166% by 2054. As the debt keeps growing, the rising cost of paying interest on it will eventually reduce the government’s ability to spend on many programs that help generate economic activity. According to a Treasury study, rising debt could eventually reduce long-term economic growth by increasing the likelihood that taxes will have to go up in the future. Higher taxes could reduce the ability of companies and consumers to generate economic growth by spending and borrowing. Lower GDP growth would likely translate into lower corporate earnings and stock prices because stock prices are primarily driven by earnings.

Rising debt could also lead to higher inflation if policymakers decide to cut interest rates to reduce the government’s cost of borrowing in hopes of avoiding tax hikes or unpopular cuts to Medicare and Social Security benefits. Lower interest rates and other expansionary monetary policies have historically helped fuel inflation. Debt in the world’s largest economies is fast becoming the most substantial risk in investing today. Historically, no country has perpetually increased its debt/GDP ratio. The highest levels of debt topped out around 250% of GDP. Since 1900, 18 countries have hit a debt/GDP level of 100%, generally due to the need to pay for fighting world wars or extreme economic downturns such as the Great Depression. After hitting the 100% threshold, 10 countries reduced their debt, 7 increased it, and one kept its level of debt roughly the same.

Some deeply indebted smaller countries have been forced to reform their economies and lower their debt by pressure from the International Monetary Fund or market participants known as the “bond vigilantes.” But the US is unlikely to experience something similar, given its stature as the world’s largest economy and reserve currency. What may be more likely is an economic future like that of present-day Japan where high government debt has helped create a climate of ongoing economic stagnation.

To be sure, not everyone agrees on how dangerous debt is. One controversial but increasingly popular economic philosophy known as Modern Monetary Theory even holds that countries such as the US, whose currencies are not backed by assets such as gold reserves, don’t need to worry about debt. Advocates argue that the US can always increase the money supply to cover its debt service and so would never risk defaulting on its debt.

How might government debt affect markets?

Yields on longer-term Treasury bonds have been rising recently, due in part to concerns about the debt.

Stock markets generally react over time to changes in the pace of economic growth, and the direction of corporate earnings, rather than to short-lived political events such as the approach of the debt ceiling. However, US stocks have historically turned volatile as the government has approached the debt ceiling and then have risen on average in the months following an agreement to raise the debt limit. That was the case even after the 2011 downgrade.

National Debt Is a Burden on Every American

The millions of Americans who have gone to the polls may not realize it, but another candidate was hiding on every ballot: the debt.

Before politicians decide which promises to keep or break, they will contend with the inescapable and rapidly mounting burdens imposed by the federal debt.

At just under $36 trillion, or over $270,000 per household, the national debt has become America’s second mortgage. Though often mistakenly viewed as simply a burden on future generations, the debt is both an echo of damage done to the economy and of damage to come.

Though owed by the federal government, it is truly the national debt. Its cost is both a once and future burden on every American.

The debt is a byproduct of an expansionist federal government that now spends roughly 25 cents of every dollar earned in America. The debt was acquired through federal spending policies that subsidize and favor certain endeavors, people and businesses over others.

It is the financial shadow cast by the federal government’s actions to distort and deform the nation’s economy and structure. This is the first burden of the national debt—its impact on past decisions about how to invest our scarce resources.

Whenever the government taxes, spends or creates inflation through printing money, it offers an incentive for resources to leave good investments and chase bad ones. Over time, this leads to slower economic growth, fewer job opportunities and slower wage growth. The stories of surging federal debt and economic malaise over the last generation are inexorably intertwined.

These economic distortions explain how concrete bound for the foundation of a new house ends up in the wall of a government office instead. It’s how an engineer set on improving the world ends up chasing federal subsidies for dead-end energy technologies favored by politicians rather than the laws of physics.

The federal debt is a ledger of opportunities lost and dreams denied. It is part of the financial footprint left behind by the government’s redirection and mostly misdirection of Americans’ talent, effort and energy.

The federal government’s unique ability to impose taxes and print money grants it the power to demand the fruits of the labor of our workers, innovators and entrepreneurs. The government has the unique position of being more “creditworthy” on paper than any private business or family because it can use these powers to pay its debts at public expense.

These powers also give rise to the second and future burden of the debt. They ensure that the government must eventually either tax or print money to cover the future repayment of the debt and interest costs.

The former suppresses economic activity and growth outright. The latter set the ticking time bomb of inflation that slowly saps the financial strength of American families and businesses, leading to economic stagnation.

The national debt serves as mass wealth redistribution—from productive industries to unproductive ones—from young workers and families to those who already have money and ultimately from most Americans to the select few favored by Washington.

Whenever the government spends a dollar, it commits to taking that dollar back—either through overt taxation or through the silent tax of inflation.

Only one solution leads back to prosperity: We must cut government spending. Far from conferring free benefits, government spending robs the economy of its strength today and stunts its growth tomorrow.

Though new government spending and debt make a promise to be a recurring burden, the opposite is true as well. The commitment to cut spending is a promise that we can restore our economic vitality.