National Debt

Background

The national debt is the total amount of money the federal government has borrowed, plus interest. This borrowed money supplements taxpayer dollars to fund government operations, from national defense to welfare programs.

The US debt has steadily risen for decades. Where the nation should cut spending and how much, in order to rein in debt, is an ongoing political debate.

Track the day-to-day changes in how much the US owes foreign and domestic creditors here.

History

National debt rises faster when spending increases (for example, during a war or pandemic), or when tax revenue decreases (as during a recession).

The US has accrued debt since its infancy. Only seven years into nationhood, debts from the Revolutionary War totaled $43M. By 1789, the Founding Fathers created the Treasury Department under Alexander Hamilton’s leadership to borrow money and manage debt.

The nation’s debt steadily rose until 1835, when President Andrew Jackson’s administration reduced it to $0 for a year by slashing programs and selling federal lands. Ultimately, however, his erratic policies led to a depression that lasted into the mid-1840s.

The US began borrowing money again during this downturn, with spending spiking during the Civil War.

The Treasury had to get congressional approval for each loan until 1917, when World War I demanded unprecedented spending. To provide the department with more leeway, the legislative branch set a debt ceiling, or maximum amount of debt the country can take on. This ceiling was raised every year during World War II and has been raised about 80 times since 1960.

In recent years, the wars in Afghanistan and Iraq, the 2008 recession, and the COVID-19 pandemic significantly increased the national debt.

How It Works

Governments fund everything from welfare and public works programs to military and foreign aid services to ensure the well-being of their residents and allies. (Find out what the US has spent money on this year.)

Taxes help pay for these programs, but government spending often exceeds the revenue collected.

The US government primarily sells bills, notes, and bonds (collectively called securities) to domestic and foreign individuals, companies, and other governments to cover the gap. This is called public debt. The government also has intragovernmental debt or money one government sector owes to another. (Find out how much of each debt type the US holds.)

In both cases, the government promises to pay back the original value of the security plus interest to make it worth it for the lender. About 15% of annual federal spending goes to repaying these debts (see chart of the annual cost of interest payments on the debt).

The US is one of two countries whose legislature sets a debt ceiling. The other is Denmark, but its borrowing limit is so high it rarely has to be raised.

While Republicans and Democrats disagree on the conditions to raise the debt ceiling, there's widespread consensus that default would be catastrophic to financial markets, globally. For the last three decades, a gridlocked Congress has approved more borrowing just before the Treasury runs out of money.

While much focus is put on debt, the debt-to-gross domestic product ratio and interest payments on debt relative to GDP are widely considered to be key indicators of fiscal health. The lower a country’s debt-to-GDP ratio and interest rates are, the stronger its economy is likely to be.

Future

The US debt is inching toward $37T, the debt-to-GDP ratio is multiplying, and interest rates are high.

An aging population coupled with the high price of healthcare, plus global threats like pandemics, wars, and natural disasters, are all contributing to the national debt’s rise.

The Trump administration’s initiative, the Department of Government Efficiency (DOGE), has aimed to slash federal spending, but evidence suggests it has yet to significantly reduce the national debt.