The $40 Trillion Mark Arrives Early
An update released Wednesday by the Department of the Treasury shows the United States has now surpassed $40 trillion in total debt. That figure counts both debt held by the public and what federal accounts owe each other.
This happened years sooner than forecast. Back in May 2023, the Congressional Budget Office pegged 2028 as the year debt would hit $40 trillion. Instead, it reached $39 trillion in March and added another $1 trillion in less than five months.
Debt growth has shifted into a higher gear this decade. It took nearly two centuries to top $1 trillion in 1981, the Committee for a Responsible Federal Budget notes, which would be $3.67 trillion today after adjusting for inflation. As CRFB president Maya MacGuineas put it, "$40 trillion of debt doesn't exist solely on the government's ledgers; it is felt throughout the economy and finds its way to the pocketbooks of people one way or another."
How We Got Here
Economists have long cautioned about a crunch from heavy borrowing, rising outlays, and lower taxes, especially in President Donald Trump's second term that began in January last year. His cost-cutting drive has featured a Department of Government Efficiency initiative that eliminated a range of 250,000 to 350,000 positions in the federal workforce and reduced global aid beginning early last year.
Total debt has doubled since January 2017, when Trump's first term began, up from $19.95 trillion. During that first term, public debt climbed by $7.8 trillion, largely tied to the costs of responding to COVID-19. From 2021 to 2025, during Joe Biden's administration, pandemic-era borrowing and spending continued, pushing the debt up by $8.4 trillion. After Trump returned to office in January 2025, the debt rose by $3.8 trillion, bringing the increase across his two terms so far to $11.6 trillion.
Two major shocks drove a big chunk of the borrowing over the past two decades: the 2007 to 2009 recession and the 2020 to 2023 pandemic, which accounts for about one third of the debt accumulated since 2017 as both the Trump and Biden administrations stepped up borrowing.
Another pressure point is that revenues have not kept pace with spending, especially as more dollars go to pensions and healthcare for an aging population. Annual federal outlays are about $7 trillion, with roughly 60 percent devoted to Social Security Administration benefits, health coverage programs including Medicare and Medicaid, and care for veterans. In July, Treasury recorded $334 billion of revenue drawn from individual income taxes, social insurance contributions, corporate taxes, plus other receipts, against $766 billion in spending for Social Security, health insurance, national defense, and interest.
Interest costs have also surged. Rates were low until the pandemic, when the Federal Reserve raised them to tame inflation. The US now pays about $1.1 trillion a year in interest, slightly more than defense.
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Over the initial ten months of fiscal year 2026, the government's interest payments exceeded what was spent on health insurance programs, placing them behind only pension costs. USA Facts estimates annual spending of between $1.8 trillion and $2 trillion on federal retirement benefits together with state or local public pensions combined.
Tax policy is part of the picture. Under Trump's 2017 Tax Cuts and Jobs Act, the levy on corporations was cut to 21 percent after previously being set at 35 percent. He followed with the "One Beautiful Bill Act" in 2025, which locked in the 2017 law, trimmed Medicaid by 12 percent, and lifted the debt ceiling by close to $5 trillion.
Today, individual income taxes account for roughly half of federal revenue, with corporate income taxes at about 9 percent. Between Trump's two terms, the Biden administration directed substantial spending toward infrastructure and clean energy subsidies.
Who Holds the IOUs
Publicly held debt - borrowed from investors in the US and abroad - makes up about 80 percent of the gross total, roughly $32 trillion. About $21 trillion of that is held domestically by a mix of creditors, according to the Peter G Peterson Foundation's analysis. Of domestic holders, the Federal Reserve owns $4.528 trillion; mutual funds hold $5.195 trillion; pension funds possess $1.135 trillion; state and local governments have $1.636 trillion; and commercial banks and other depository institutions carry $2.083 trillion, with corporate and individual creditors accounting for another $6.660 trillion.
Foreign investors' share has climbed from 5 percent of gross debt in 1970 to 32 percent by 2025. That support boosts economic activity, but it also means more income leaves the country as interest. By 2025, obligations included $1.203 trillion to Japan, $889 billion to the United Kingdom, and $683 billion to China, along with debts to more than 30 other entities.
The other 20 percent of gross debt, about $8 trillion, is owed within the government and does not affect the overall finances the same way.
The Outlook and Why It Matters
According to the CBO, the debt-to-GDP ratio is expected to climb from 101 percent in 2026 to 120 percent by 2036, well above the prior US record of 106 percent set after World War II. Analysts warn that as the debt load grows, private investment can get crowded out and growth may slow.
For your wallet, the through-line is simple. Bigger borrowing needs and higher interest costs can shape the path of rates that ripple into mortgages, car loans and bond yields, and they influence how fast the economy can grow.
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