The U.S. Federal Debt Hits $40 Trillion

The U.S. GNP in 2025 had been $30.77 trillion (nominal). Even though that represents a real growth rate of 2.1 percent, according to the U.S. Bureau of Economic Analysis, the total dollar-amount of economic output of the bloc was almost $10 trillion lower than the total federal debt, and this does not count the respective debts of the member-states. In fiscal year 2025, the net-interest paid on the federal debt amounted to $970 billion, which translates into nearly 20 percent of the federal government’s revenue and exceeded the $917 billion in defense spending. The milestone of $40 trillion in federal debt, reached on August 19, 2026, can thus be put into perspective at the federal level of government. It is no wonder that Europeans had been raising concerns regarding the issuance of federal debt by which the E.U. could aid Ukraine militarily. Things can get out of hand, fiscally, at a federal level.

The Reagan, Bush, and Trump tax cuts, along with the increases in both social and military spending over those decades, can be cited as having exasperated the federal debt. The words of Kush Desai, a White House spokesman, regarding the approach of the second Trump administration in “slashing waste, fraud, and abuse in federal spending while accelerating economic growth to get America’s debt-to-GDP ratio trending in the right direction” can be regarded as insufficient, given the huge size of the federal debt.[1] By insufficient, I mean to suggest that an orientation to waste and abuse in the context of extended tax-cuts and an increasing defense budget does not take the amount of debt seriously enough. Even the orientation to the debt-to-GDP ratio leaves out the intragovernmental implications of the debt in terms of spending on interest, for example. Furthermore, GDP is only loosely related to whether any of the debt might get paid off. The electorates would have to elect representatives who in turn would be inclined to spend more tax revenue, even probably increasing taxation, to retire some of the debt. Democracy itself may be inherently oriented to the mentality of spend now by debt and pay (off the debt) later, given the instinct of instant gratification. Electing representatives who are oriented instead to tax cuts and cutting wasteful government spending can be viewed as a manifestation of that very instinct because the orientation can function as a subterfuge. In short, economic output does not translate directly into paying off a public debt; electorates do, and more than the changes in their wages and salaries, it is their political judgment (and values, especially in terms of responsibility itself) that is decisive on whether an extant debt gets paid off. To be sure, the relation of the total amount of public debt to a year’s total economic output is an indication of how long (and how much) it would take for taxpayers to be able to pay off the debt, given their taxable incomes, but the sheer enormity of amount of the accumulated debt and its relationship to the total amount of the government’s annual budget are crucial indicators of whether fiscal policy has become too unbalanced to be tolerated, politically.

This is not to say that being $40 trillion in federal debt does not matter in macroeconomic terms (i.e., to the American economy). Experts were already saying in 2026 that the U.S. debt was “already affecting Americans’ pocketbooks by raising borrowing costs for things like mortgages and cars, lowering wages from businesses that [had] less money available to invest, and creating more expensive goods and services.”[2] Accordingly, Michael Peterson, CEO of the Peter G. Peterson Foundation, a think tank oriented to fiscal policy, said, “If we want to improve our living standards, today and for the next generation, now is the time for lawmakers to put our nation on a more affordable and sustainable path.”[3] To be sure, besides being focused on the nation, and thus not looking at its federal system (i.e., how much public debt was being held by the member-states), Peterson was also discounting the financial drag that is involved in using (and even increasing) federal revenue to pay off debt rather than spend tax dollars in ways that would boost economic growth.

I submit that the extent of the imbalance between the revenues and expenses of the U.S. federal government is itself worthy of attention, for such a large debt means that even the Keynesian policy of having deficits during recessions that would be paid off during periods of economic growth—again, as if GDP were decisive—has been exploited such that deficits have become the norm whether in times of boom or bust. The human instinct for instant gratification can and should be effectively countered both in the psyche and in legislative bodies by the use of reason, unless of course Plato’s theory of a just republic is utterly unrealistic. Reasoning, whether at the ballot box or in a legislature, that is oriented to government (and the very republic!) as a going concern rather than as effectively bankrupt can and ethically should act as a restraint on the passions to spend without having to immediately pay. Even if the majority of voters in an electorate are just fine with government spending without sufficient revenue (taxation), elected representatives can legitimately push back without being accused of double-crossing or betraying their constituents. This is one reason why U.S. senators have a six-year term; even the Electoral College, as it was intended in the Convention, was to be a device by which a federal president could be elected for the good of the country rather than from the momentary passions of the citizens of a member-state. The U.S. House was intentionally designed to be more reflective of an electorate’s momentary passions, but the devise of representation itself mitigates this reflection to some extent, even in spite of the term of office being only two years. The size of the federal debt may indicate that such safeguards within the complex architecture of the U.S. Government have not been efficacious. In other words, the federal government itself may have gotten severely out of balance in terms of electoral politics and governance.

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1. Fatima Hussein, “The US National Debt Now Stands at $40 Trillion,” APnews.com, August 20, 2026.
2. Ibid.
3. Ibid.

The U.S. Government’s Debt: Federalism Unbalanced

On May 5, 2025, the debt of the U.S. Government stood at $36.21 trillion, $28.9 trillion being held by the public and $7.31 trillion being intragovernmental. That total is $1.66 trillion more than the total federal public debt on May 5, 2024. Projected interest payments of $952 billion in fiscal year 2025 would be 8 percent higher than the interest payments made in 2024. By comparison, the U.S. budget for national defense in fiscal year 2025 totaled $892.6 billion. Whether going to investors of treasury bonds or defense contractors and other corporations, the combined $1.85 trillion for fiscal 2025 represents a transfer payment to the wealthy from American taxpayers rich, middle-class, and poor. Meanwhile, Republican lawmakers in the U.S. House of Representatives passed a bill in May, 2025 that would subject Medicaid and food assistance to significantly less money and subject the States with having to spend more on the administration of those programs. Principles of political ideology reside just below the surface. My task here is to flush them out and relate them to each other, rather than to impose my own ideology.

Fresh out of the Trump Administration, billionaire Elon Musk called the tax and spending bill a “disgusting abomination.”[1] Presumably this condemnation has to do with the “multi-trillion tax breaks” and the raising of the debt ceiling an additional $4 trillion, but the CEO of SpaceX would hardly object to the increase for defense.[2] Musk wrote that the “outrageous, pork-filled” bill would “massively increase the already gigantic budget deficit to $2.5 trillion” in spite of the cuts to healthcare and food for the poor that Musk supported.[3] U.S. Sen. Rand Paul promised to vote against the bill unless the debt ceiling would not be raised.

As of early June, 2025, who could say whether Republican opposition in the U.S. Senate would actually materialize beyond the rhetoric designed to give an impression of objection to voters back home. The Republican lawmakers in the House had quickly closed ranks to pass the House bill. Behind the numbers are values and ideological principles that can be difficult to see. Cutting federal programs that help the poor with subsistence living, such as with food and healthcare, can be said to imply a lack of compassion, especially if defense contractors would be getting more business from the federal government, but two political principles are also in play.

One is the belief that the role of government should not include providing even the basics to people; charities and families should supply basic needs to the poor. Overlaid with that principle is one concerning American federalism, wherein the federal government was originally intended to have very limited powers, and one way of limiting them was to make regulating interstate commerce and providing a common defense primary, with other domains of power being handled by the States. This principle is in accord with the differences between States in an empire-scale federal union of states because the state governments can more tightly match social programs with the political ideology of a majority of the voters in a state than can be done by Congress.

These two principles—the first being more general and the second more particular to the American federal philosophy—are not fully consistent, for according to the federal principle, Congress should take care that the state governments are not crowded out in taxing more so as to take on more in domestic programs—domestic being here within a given state. Whereas the view that the proper roles of government do not include making goods and services available to citizens applies to the States too, the principle of federalism favors expanding the taxing and spending abilities of the States according to how much of an entitlement-providing responsibility each state government wants, as per the relevant political ideology of the majority of the citizens of a state.

Re-balancing American federalism so the States regain some of authority that they once had should include managing the transition especially concerning programs relied on by the poor because they are vulnerable to suffering and even dying by slipping between the cracks. Relatedly, because in at least some of the several States, the majority of people believe that government should supply the poor with necessities, the more general political principle that government itself should not supply goods and services to individual citizens should give way to the second, federal principle. Put another way, were Congress to vote to restrict government itself, then more expansive ideologies in at least some States would be choked off. The general government principle should be decided therefore on the state level rather than by Congress.

Taking a page from the E.U., the U.S. member-states could conceivably be given more responsibility in funding defense beyond just militias, which are armies that the U.S. President can borrow. Not that the head of state of California should step over the federal president on defense policy as Macron of the E.U. state of France did in trying to head the E.U.’s defense policy against Russia in 2025. The defense budget of the U.S. Government could be reduced and the states could do more without the latter superseding the former. Together with transferring more non-interstate-commerce domestic programs to the states, the federal deficits could be reduced. President Reagan failed to rebalance American federalism because he favored the more general restrictive-government-role principle and thus did not facilitate states making up for federal cuts in domestic spending. To be sure, the state governments would have done so to various extents, given their distinct political climates.

Restoring power to the member-states heeds the fact that over a continent and beyond, one size (of public policy) does not fit all (States). Curtailing both federal defense and domestic spending while reducing federal taxation by less than the combined cuts but enough that state taxing abilities would no longer be crowded out from expanding to meet the incoming transfer of programs would put the federal government on the road to fiscal responsibility—meaning being able at some point to pay off its debt—while giving the state governments back more of the authority they had when the federal system was designed and put into operation. The horrendous fiscal imbalance of the U.S. (federal) Government can be interpreted as pointing, in effect, to how imbalanced the federal system itself has become. No one at the U.S. Constitutional Convention envisioned the federal level as handling everything of substance while the state governments become like municipal governments, so it should be no surprise that such a lack of fit would be reflected in a massive fiscal imbalance on the federal level.

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1. Bernd Debusmann, “Musk Calls Trump’s Tax Bill a ‘Disgusting Abomination’,” BBC.com, June 3, 2025.
2. Ibid.
3. Ibid.

On the U.S. Government’s Budget Deficits and Debt: American Democracy Unhinged

It is true that a government’s budget can be read as a blueprint of priorities in terms of what is valued, and what is not so highly valued. The blueprint itself, as a whole, also evinces a priority in terms of values. As the big-ticket items, such as large spending categories and massive tax-cuts, get the most attention, whether a budget is in balance can go by the wayside, and what that says about the electorate (and thus the state of democracy) can easily be missed. Ultimately, public policy and even the votes of the elected representatives point back to the popular sovereign, the People—more specifically, the electorate, and its values. By 2024, the deficit and accumulated debt of the U.S. Government had reached such gigantic numbers that something could be said to be amiss concerning those values. The underlying culprit, which can be said to be an illness that is human, all too human, had by then infected American democracy beyond the wherewithal of virtually any elected federal representative to enunciate well enough that the electorate could look clearly at itself, and thus size itself up beyond the partial diagnoses that can be found in partisan attacks.

In late June, 2024, the (nonpartisan) Congressional Budget Office forecasted a $2 trillion deficit for the year, up from an earlier estimate of $1.6 trillion.[1] At the time, the federal accumulated debt stood at $34 trillion. Whereas in the 1970s, the debt as a percent of GNP was in the low 30s, the percentage for 2023 stood at just over 120 percent. Clearly, the trajectory of deficits and debt was disproportionate even on a percentage basis. Furthermore, interest payments made by the U.S. Government, which the CBO director said were “large by historical standards,”[2] were poised to exceed the entire defense budget in 2024; and that recipients of interest-bearing bonds tend to be on the wealthy side, whereas the poor and middle-class pay taxes, the ballooning debt could be viewed as an engine of wealth-transfer from the poor to the rich via the U.S. Government, hence increasing economic inequality as an indirect effect of fiscal public policy. In short, something systemic was out of balance, with ethical implications.

Blaming large ticket items (i.e., federal spending) provides us with an easy target but only gets at a symptom. Regarding the 2024 fiscal year, the Congressional Budget Office pointed to the $145 billion cost of the President’s changes to student loans and the $95 billion foreign aid for Ukraine, Israel, and Taiwan enacted in April as the two largest factors.[3] Almost a trillion dollars for three countries. Healthcare costs came in third.

To be sure, the changes in student-loan policy under President Biden were in large part due to the spurious vocational claims of for-profit “universities and feckless accrediting agencies, with unemployed former students as the victims. The foreign-aid spending was associated with foreign policy objectives—holding back Russia and sending a message that military aggression (by Russia) is no longer acceptable in the 21^st century being foremost. In short, both deficit-growing factors were oriented to protecting victims, and thus could be justified ethically. Increased public health-insurance costs too can be justified ethically, given the value of health irrespective of income and wealth.

Even lofty goals come with costs, however, which may not be affordable. A sovereign government with the authority to “print money” need not be constrained by what it can afford, absent constitutional language mandating a balanced budget. Of course, spending is only half of the deficit equation; taxation being the other. That spending had been outstripping revenue since the Clinton administration can be traced back to the Reagan tax cuts. Regarding the deficit in 2024, the Trump tax cuts should also be remembered. Moreover, the refusal of Congresses and presidents to raise taxes to cover increases in spending when the economy is fine or (especially) good is also a factor in how the U.S. Government’s debt got to $34 trillion.

Both the proclivity to increase government spending and the reluctance to increase taxes (or defeat tax-cut proposals) leads us directly “under the hood” to popular sovereignty: Government by the People. That is to say, the American electorate is ultimately to blame for not electing representatives, senators, and presidents who resist the twin temptations. To be sure, differing political ideologies on the proper size of government, and, more specifically, the federal government, are also legitimate in voting decisions.

A believer in a small federal government, harkening back to Thomas Jefferson, might vote for candidates in favor of tax cuts in order to “starve” the federal government. But this strategy ignores the unlimited ability of that government to enact spending bills. A “small government” ideology should go after spending and taxes with enough tax revenue over spending in the out years to pay off the accumulated debt.

A believer in a large federal government (in absolute terms and relative to those of the states) has no problem resisting tax-cut proposals; it is the notion that a government can or should grow by increased spending, especially without increased taxation to cover both the additional spending and to pay off the accumulated debt, that is problematic.

In the 1980s and early 1990s, the U.S. deficits (and debt) were significant in political discourse. David Stockton, President Reagan’s head of the OMB (Office of Management and Budget), wrote The Triumph of Politics to explain why Reagan failed to bring down the deficit numbers. The imbalance was in the public’s aversion to cutting domestic spending, Reagan’s increase in defense spending, and the president’s tax-cuts. In terms of the American electorate, the desire for immediate consumption, which includes tax-cuts, combined with the lack of responsibility can be cited as the ultimate source of the imbalance that may be inherent in democracy itself.

It is significant that Thomas Jefferson and John Adams agreed long after they were out of the political arena that a viable republic requires an educated and virtuous citizenry. Put another way, self-government requires a sense of responsibility in terms of fiscal governance. That the debt of the U.S. Government had been allowed to reach $34 trillion by 2024 can be interpreted as a verdict, or an x-ray, on just how fit the American electorate had been to govern itself through its chosen representatives. The real threat to American democracy lies within. The threat, in fact, by 2024 may have become much more serious than even that of unbalanced fiscal policy.  For the proverbial invisible “elephant in the room” may no longer have merely been the failure of the American electorate to exercise its popular sovereignty with fiscal responsibility on governmental taxation and spending: the rising unexamined question may ironically have already relegated fiscal responsibility altogether in silently asking whether $34 trillion ever gets paid off. Like an insect whose legs are still twitching even though it is already dead, the U.S. Government may have already been effectively bankrupt without anyone realizing it. If this was already de facto the case by 2024, then the damning verdict, not seen yet in plain sight, would be on another level entirely. 

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1. Jennifer Scholtes, “$2T in Red Ink: Foreign Aid, Biden’s Student Loan Policies Hike U.S. Deficit Forecast,” Politico, June 18, 2024 (accessed June 22, 2024).
2. Ibid.
3. Ibid.

The Payroll Tax Cut: A Luxury?

As U.S. deficits and thus the federal government's debt had been increasing since the Clinton Administration in the late 1990s, proposals for a payroll tax-cut entailed risking the financial condition of the U.S. Government. To be sure, increasing government spending above inflation was risky too. Here, though, tax policy as it relates to deficits, and thus debt, is analyzed. 

During the summer of 2011, Rep. Eric Cantor (R-Va), the U.S. House's Majority Leader, opposed continuing a tax cut. It was not the tax cut that had been enacted under George W. Bush that disproportionately benefitted the top brackets. That tax cut was sold to the American public as good under the supposition that the growth of jobs would result. The tax cut opposed by the Majority Leader in 2011 pertained to the payroll tax. Workers’ contributions to social security were to be cut from 6.2% to 4.2% until the end of 2011. A spokesman for the Majority Leader argued that if “the goal is job creation, Leader Cantor has long believed that there are better ways to grow the economy and create jobs than temporary payroll tax relief.”[1] However, it could be argued that whereas the tax cuts at the upper-income brackets tend to be saved because the wealthy already have the means to purchase what they want, workers tend to spend any extra disposable income precisely because they don’t have the means to buy even all that they need, particularly in the case of families. Moreover, workers would feel the end of a tax cut more than a rich person would.

It does appear that the Republican party’s support of tax cuts hinged on the financial interest of the rich—tax cuts are not created equal. This asymmetry eclipses the party’s ideological goal of smaller government, for otherwise any tax cut would be sought because it would mean less government taking as well as the possibility of starving government spending. Furthermore, the asymmetry trumped a priority on reducing a deficit that had been over $1 trillion in 2010. A deficit is the annual addition to the U.S. Government’s debt, which was around $14 trillion at the start of 2011. On the heels of S&P downgrading that debt to AA, continuing any tax-cut, even to prop up the economy, can be reckoned as foolhardy unless the money that taxpayers would otherwise pay in taxes is spent or invested sufficiently to boost the economy enough that the government would take in more tax revenue than the amount lost due to the tax-cut.

It is possible that Freddie Mac and Fannie Mae could have done more for the economy by allowing homeowners in trouble to refinance to the lower interest rates in 2010 and 2011 than would have been lost from ending the tax cuts. If so, it could be that we could do better in lowering deficits while stimulating the economy. Even with some drag on the economy, the numbers on the baby boomers retiring suggests that the social security fund could not afford the payroll tax cut in 2012. In fact, it could be that the fiscal impacts of government policy are less significant on the overall economy than on the deficits and debt, which are more immediate to the government's financial position. Debating whether to continue tax cuts with respect to economic growth (and even jobs) may reveal a lack of attention on reducing public debt as a priority if the tax revenue given up by the Internal Revenue Service is more than additional tax revenue to be obtained from the added economic growth from the tax-cuts. Indeed, analysis of the Bush tax cuts had shown that the tax revenue given up was more than the induced take. In technical language, the Laffer Curve had already been discredited by 2011. Therefore, ignoring the cost of a tax cut in terms of tax revenue, and thus higher deficits, is negligent and irresponsible, whether by Congress, the media, or the citizenry itself.

1. Jennifer Steinhauer, “For Some in G.O.P., a Tax Cut Not Worth Embracing,” The New York Times, August 26, 2011.