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What’s driving the massive increase in America’s national debt? How might this unprecedented debt affect your financial future?
The growth of the US national debt has become a critical economic issue, with projections showing an alarming rise to 116% of GDP by 2034. From increased government spending and tax cuts to national emergencies and rising healthcare costs, multiple factors are pushing the debt to record levels.
Read on to understand the complex web of causes behind this fiscal challenge and explore potential solutions that could shape America’s economic future.
The Growth of the US National Debt
The growth of the US national debt has reached an unprecedented rate. It’s projected to climb from 97% of GDP in 2023 to 116% by 2034—raising concerns about potential economic implications for the US and global economy. Key factors include increased spending, decreased taxes, national emergencies, and health care and defense costs. Experts recommend considering tax increases for wealthier individuals and proactively addressing long-term fiscal imbalances.
We’ll explore the primary factors contributing to the rapid rise in national debt, the potential economic implications for both the US and global economy, and what measures policymakers and elected officials can take to address the growing problem.
Context
The US national debt held by the public (money owed to individuals, businesses, and foreign governments), was roughly $28.8 trillion in mid-January 2025. The Congressional Budget Office (CBO) predicts this figure will reach $48 trillion by 2034. The surge in debt is primarily due to projected large budget deficits over the next decade.
Experts say that, while the US Treasury has successfully managed some of the debt by holding weekly auctions of long-term securities, overall debt growth remains significant. And, despite warnings from the CBO, International Monetary Fund, and Goldman Sachs about the ballooning debt, there’s currently no concrete plan to address the problem.
What’s Behind the Rising Debt
Analysts say that increased spending and decreased taxes are largely responsible for the nation’s high and rising debt, with both major political parties contributing to the problem through various policies and initiatives—including President Biden’s Inflation Reduction Act and former President Trump’s tax cut programs.
(Shortform note: In their book Donald Trump and His Assault on Truth, authors Glenn Kessler, Salvador Rizzo, and Meg Kelly claim that the tax cuts enacted during Trump’s first term weren’t as substantial in relation to the GDP as those during Reagan’s term. Following the bill’s implementation, there was an increase in tax revenue that corresponds with the steady yearly growth noted by the CBO since World War II concluded. The anticipated revenue goals were not met following the bill’s implementation.)
In addition, national emergencies, wars, health care costs, and defense spending are significant contributors to the national debt.
What’s at Stake
Economists warn that high interest on federal debt could lead to a financial crisis, as more national income goes toward debt repayment, leaving less money for public services and other sectors. If the US’s entire income is consumed by debt payments, it could lead to an economic collapse due to a lack of funds for essential needs.
Further specific concerns about the US’s rising debt include:
- The risk of experiencing a crisis similar to what unfolded under former UK Prime Minister Liz Truss, where high debt led to market turmoil and currency devaluation.
- The economy overheating due to excessive public spending and borrowing, which could destabilize the domestic economy and affect global funding costs.
- The potential destabilization of the stock market due to costs associated with the increasing debt.
- Decreased attractiveness of US Treasury bonds to international buyers because of concerns about the US debt situation and potential sanctions. This could lead to reduced foreign investment and undermine the dollar’s status as the world’s safe asset, which could have significant implications for the US and global economy.
- Rising interest rates set by the Federal Reserve leading to increased costs for the government to pay back its debt, making it more challenging to manage.
The CBO cautions that, if soaring debt levels persist, they could threaten economic growth and limit the government’s fiscal ability to address future challenges. At the local level, the government’s increasing debt could prevent it from funding expenses such as hospitals, schools, and roads.
| Is There Truly Cause for Concern? In The Deficit Myth, economist Stephanie Kelton—a former Senate Budget Committee staffer and 2016 campaign adviser to Bernie Sanders—writes that nearly all of the public discourse about national debts and deficits gets the facts entirely wrong, leading proponent of the heterodox economic school of thought known as Modern Monetary Theory (MMT), Kelton argues that it is incorrect to think of the U.S. federal government as “needing” money to pay for its spending. Because the government is the sole supplier of US dollars, it can simply create them anytime it needs more dollars to pay for something. Kelton’s argument rests on several principles, including: – The national debt isn’t a threat to our society or economy. – The federal government doesn’t need to balance its budget like a household. – The risk of inflation—not deficits—represents the real threat to economic growth. – Social spending programs such as Medicare and Social Security are not in danger of going broke. |
Potential Solutions to Growing Debt
To mitigate the escalating national debt, experts say that elected officials and policymakers should prioritize fiscal deficit issues by promoting responsible spending, considering increased revenue through tax hikes, and proactively addressing long-term fiscal imbalances before market forces demand drastic action. However, each of these solutions comes with challenges.
While the Biden administration says its tax increases on corporations and wealthy individuals will ensure a balanced budget and manageable interest costs on borrowed money, economists note that bipartisan cooperation—often in short supply—is required for these plans to work.
Republicans propose significant spending reductions to decrease the deficit, though they haven’t detailed specific areas for cuts. Democrats counter that overspending isn’t the main cause of unsustainable debt levels—they point instead to interest rates and tax income as crucial elements. Both parties are reluctant to reduce benefits from major social welfare programs such as Social Security, making it difficult to reach a consensus on addressing the debt crisis.
| Could Bitcoin Offer a Solution? In The Bitcoin Standard, economics professor Saifedean Ammous doesn’t address the problem of the national debt explicitly, but, if market forces drove the US economy to use primarily bitcoin-backed dollars, the demand for US fiat dollars would decrease, and with it the value of fiat dollars. Because the US national debt is owed in fiat dollars, that would mean the real value of the debt would also diminish, making it easier to pay off and less of a problem in the meantime. |
The Road Ahead
Experts caution that a number of factors could increase the US’s debt burden in the future, including the continuation of Trump’s tax cuts, discretionary spending increases with inflation, higher-than-projected borrowing costs, high defense spending due to ongoing wars, and deficits continuing unchecked. Additionally, as China and other emerging markets gain more economic power, they could lessen their reliance on the US dollar, potentially making it harder for the US to find buyers for its debt, thereby worsening the nation’s financial situation.
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