What the National Debt Means To You

The national debt rises when the United States spends more than it earns from taxes and other revenue. Public debt results from tax and spending policies that commonly garner public support, but individuals often worry about how the national debt affects their lives and finances.

The U.S. government’s debt exceeded $36 trillion in June 2025, growing in nominal terms and relative to the U.S. gross domestic product (GDP) with a debt-to-GDP ratio of 123%.

Managing Debt

The federal government runs a budget deficit when spending exceeds tax collections and other revenue. The U.S. Treasury sells Treasury bills, notes, and bonds to make up the difference. The national debt is the aggregate of the federal government’s annual budget deficits, minus surpluses.

Households have finite life spans to earn money. Prudence may dictate getting out of debt and accumulating retirement savings long before they’re needed. However, countries can generate revenue indefinitely and often refinance debt.

Countries owe interest and debt service costs, which indicate debt sustainability. Net interest will total $10.5 trillion through 2033 with annual net interest outlays of $1.4 trillion, according to the Congressional Budget Office (CBO). Net interest will rise from 1.9% of GDP in FY2022 to 3.6% of GDP by 2033.

History of U.S. Debt

The debt-to-GDP ratio tends to rise during recessions and in their aftermath. GDP shrinks during a recession. Tax receipts decline, and safety net spending increases. The combination of higher budget deficits and lower GDP inflates the debt-to-GDP ratio. Deep recessions like those in the 1980s and 2008 to 2009 can have particularly pronounced and prolonged effects on the national debt.

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Debt has been used to support significant historical events in the U.S.

• Overseas borrowing financed the American Revolution.
• Tax cuts and spending increases advocated by President Ronald Reagan grew the debt-to-GDP ratio to 52% by 1990.
• The fallout from the Great Recession saw the debt-to-GDP ratio rise from 64% in 2008 to 100% by 2012.
• The COVID-19 pandemic response raised the debt-to-GDP ratio from 106% in late 2019 to 133% by the second quarter of 2020.

Important

Fitch Ratings downgraded the United States’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to AA+ from AAA on Aug. 1, 2023, and reaffirmed it in 2024. Fitch cited the “high and growing general government debt burden” as part of its decision.

How Debt Affects Individuals

Government debt is often likened to personal debt to convey concern about its size, but a family can’t pay its debts as the U.S. government does. How the borrowed money is used may matter more than the absolute level of debt or its proportion to a country’s GDP.

The paradox of thrift shows how individual choices to save more can produce the opposite effect in the aggregate. No paradox is needed to explain why governments adopting fiscal austerity often cause deeper economic downturns, with more significant deficits and ultimately more debt.

Debt and debt servicing costs force policymakers to make painful choices. Individuals commonly argue that they pay too much in federal income tax. Government borrowing invested to increase the economy’s productive potential may produce returns far exceeding the borrowing costs, or it might not.

What Is the U.S. Debt Ceiling?

The debt ceiling is also known as the debt limit. It is the maximum amount of money the United States can borrow to meet its legal obligations. The debt ceiling was created under the Second Liberty Bond Act of 1917. When the national debt levels hit the ceiling, the Treasury Department must use other measures to pay government obligations and expenditures.

What Is Included In the National Debt?

The national debt is the money the federal government owes its creditors, both the public and various government agencies. The debt is denominated in Treasury bills, notes, bonds, Treasury Inflation-Protected Securities (TIPS), Floating Rate Notes (FRNs), Government Account Series, and other securities.

What Is Modern Monetary Theory?

Modern monetary theory (MMT) argues that governments don’t rely on taxes or borrowing for spending because they can print as much money as they need. Some economists note that levels of U.S. government debt don’t necessarily reflect the savings preferences of government bond buyers. These buyers include the central banks of countries with trade and account surpluses with the U.S. and its corporations and households.

The Bottom Line

The national debt is commonly a politically charged issue, especially when the amount outstanding nears the congressionally mandated debt ceiling. Politicians and financial markets must confront the possibility of a devastating U.S. debt default if the ceiling isn’t raised.