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 Debt-Ceiling and the U.S. Budget as Ransom: A Structural Flaw of Democracy?

It is likely a drawback of democracy that hard decisions—that is, those in which fixing the problem goes against instant gratification or financial advantage—get pushed back, or “kicked down the road,” rather than addressed in a definitive way such that difficult problems are fixed. This structural problem can be seen in how Congressional leaders and the U.S. President delayed the “fiscal cliff” for two months at the beginning of 2013. More generally, the political tactic of holding the federal budget and the debt-ceiling as ransom evinces a fundamental flaw in democracy itself.

To be sure, excesses in politics were also in the mix, as each side stepped back from closing deals when presented with a more opportunistic bargaining standpoint in doing so. For example, President Obama suddenly added $400 billion more in revenue to his “grand bargain” with Speaker Boehner when the bipartisan “gang of six” in the U.S. Senate announced their own deal, which included more revenue than was in the “grand bargain.” Put another way, Obama got greedy and undercut his own credibility in terms of sticking to a deal that he had led the Speaker to believe had been achieved. Later, as conservative Republican pressure mounted on the Speaker, he walked away from even the “grand bargain” without the $400 billion more in revenue on the table. The result was frustration, distrust, and a “quick fix” that merely “kicked the can down the road” and unnerved markets with the prospect of ongoing uncertainty. At the very least, the trajectory bespoke the dysfunction rather than triumph of politics. More subtly, the verdict on representative democracy could not have been good. Although less transparent, this observation is far more serious, for no alternative to democracy could claim superiority even given the vulnerabilities in self-government.

Behind the leaders’ “inability” to reach a “grand bargain” capable of solving structural budgetary imbalances (beyond those which come from simply “digesting” the aging of the baby-boom) was pressure from competing ideologies on the size/role of government held within the electorate itself. Reconciling such distant ideologies can be difficult even in terms of reconciling visionary leadership;  deal-making is likely more oriented to a more micro level of policy.

The Speaker had been wise in wanting to do something much bigger in the “grand bargain” than merely getting the country’s debt ceiling raised and making a dent in the budget deficit. He had wanted fundamental tax and entitlements reform that would put the U.S. Government on the path to fiscal balance. “I did not come here to have a big title,” he said. “I came here to do big things.” Indeed, he put his title as Speaker at risk just by negotiating with the President with revenues on the table, given the emergence of the anti-tax “Tea-Party” Republicans in the House Republican caucus.

Upping the ante, as it were, was the choice made by Rep. Paul Ryan (R-WI) to use the debt-ceiling vote as leverage to extract concessions from the White House. According to The New York Times, “Republicans vowed to use the need to raise the federal debt ceiling in early 2013 to force deeper spending reductions before agreeing to an extension until May.” Making passage of an increase in the ceiling in some sense contingent was itself destabilizing to the market due to the new uncertainty on whether the U.S. Government would default. Additional uncertainty in the business environment translates into a business reducing or putting off investments in expanding operations. The announcement itself added risk to U.S. Treasury bonds, even if the strategy would not actually go as far as actually standing by as the United States Treasury defaults on its obligations.

In reaction to Rep. Ryan’s announcement, Tim Geithner, Secretary of the U.S. Treasury, advised the President to make a deal because a default on Treasuries would trigger not only a significant downgrade in the nation’s debt rating, but also another Great Depression that would take generations to run its course. Even if Ryan’s negotiation strategy of “hold no prisoners” is very clever in a narrow sense of politics, it is difficult to accept the “ends justifies the means” justification for even opening up the mere possibility of another Great Depression. In other words, even great political strategy can raise red flags if the country itself is put at catastrophic economic risk even for a time. It makes sense that the American Founders viewed partisanship so negatively, even if the Federalists and Anti-federalists could be as partisan as they come. Being willing to up the ante without limit in terms of the risk of harm to the whole may be part of an escalation of ideological passion that eclipses common sense and eventually sinks the entire ship. An observer from Mars might get the idea that the humans over here are getting more desperate. Given the sheer ideological distance between the competing visions at issue, using something as catastrophic as not raising the debt ceiling as leverage can reasonably be regarded as reckless, if not foolish, even if the political calculus is cleaver and even ultimately effective in terms of the ideological objectives.

Fortunately (relative to having the debt-ceiling as leverage), the minority leader and the president of the U.S. Senate came up with a “fiscal cliff” to effectively replace the debt-ceiling as leverage. Even though legislative patrons of various parts of the federal budget claimed that the across-the-board cuts, or sequestration, would devastate the particular departments or programs, “going over” the “fiscal cliff” would be preferable to even risking the U.S. going into default. In other words, the move to something less catastrophic in what a partisan is threatening if he doesn’t get what he wants represents a ray of sanity in an otherwise insane escalation in systemic risk.

To be sure, the media had made sequestration sound like the U.S. Government would be paralyzed and the sky would fall. The economic fear and uncertainty unleashed by the hyperbolic rhetoric are perhaps more harmful than the actual “cuts” would be. The across-the-board “cuts” scheduled to go into effect on March 2, 2013 absent a deficit-reduction law in the meantime total $85 billion. This is a mere sliver in a budget of more than $3.5 trillion. Indeed, the “cuts” are less  in total than the last annual increase in the budget—far from likely to send the U.S. economy into recession.

According to the Fiscal Year 2012 Mid-Session Review, the enacted 2011 budget called for $3.63 trillion in outlays. The enacted 2012 budget called for $3.796 trillion in outlays, according to the Office of Management and Budget. The annual increase, $166 billion, is almost twice as much as the $85 billion at issue in the threatened sequester for March through December 2013. Put another way, the sequester’s cuts for 2013 beginning on March 2^nd equal about half of the increase in the budget from FY2011 to FY2012.

The reckless nature of the sequestration is not in taking back half of the last annual increase. In fact, the total amount of outlays would still steadily increase throughout the ten year period that is subject to sequestration.

Rather, the craziness pertains to two points. First, although the $85 billion is less than half of the prior year’s increase in the budget, the sequestered amount would not apply, according to the Congressional Budget Office, to about 70% of mandatory spending. That mandatory spending, such as social security, medicare and Medicaid, made up about two-thirds of the budget at the time. It follows that sequestration would not touch 47% of the federal budget. This means that for the remaining 53 percent, the reduction would go deeper than the increases in those categories, or “buckets,” from the prior year. In other words, about half of the budget would take on the full weight of the sequester, hence the “cuts” there really would be cuts (i.e., going beyond removing the increase from the prior year). Reports of suspended public services, such as air traffic control at some 100 smaller airports, could thus be expected even though in total the sequester amount is about half of the total budget increase from the prior year.

It would be like adding an additional product to an already-loaded caravan of camels crossing a desert. The caravan could easily absorb the addition, except that the decision is made to put the additional weight onto about half of the camels. From the strain on those camels, an observer might easily conclude that the additional product is too much for the caravan itself. Any question of adding still another product would be dismissed out of hand even though the further addition is feasible and would make the caravan profitable.

Second, each “budgetary bucket” in the 53% of the federal budget subject to the sequestration would face the same percentage or “automatic” reduction, regardless of how vital the particular bucket happens to be. A department could not shift its “cuts” from payroll, for example, to conferences, to avoid layoffs. Put another way, all of the buckets in a given department would have be treated the same way in the sequestration (i.e., automatic, across-the-board). As a result, even just $85 billion out of $3.5 trillion could result in significant layoffs.

From the standpoint of achieving fiscal balance, it could be argued that even more should be cut, or some additional combination of additional revenue and “cuts” going beyond a total amount that merely removes about half of the annual increase in the budget from the prior year.  However, this point would doubtless pale in comparison with the real cuts to the budget buckets subject to sequestration. The way the sequestration is designed implies or gives rise to a perception of severity that is not the case on the macro level, and this perception can arrest any movement to bring spending and revenue further into line. Put another way, the way the sequestration approaches the federal budget makes it more difficult to bring enough political will to “finishing the job” in ending structural deficits and not merely narrowing them.

In conclusion, using the debt-ceiling and sequestration as leverage are not really comparable from the standpoint of actual (rather than media-hyped) harm to the United States. The harm from sequestration applies only to certain “buckets”; the overall “hit” being merely taking back some of the increase from the prior year’s budget. In contrast, the failure to increase the debt-ceiling to the extent that Treasury can avoid default gives rise to the systemic harm of a governmental default. Perceptions notwithstanding, the particular harms from the sequestration are qualitatively and quantitatively different. Accordingly, the move from the debt-ceiling to sequestration as political leverage represents a bright spot on what otherwise looks like democracy being utterly incapable of tackling fundamental problems facing a republic. To be sure, the obsessive fixation on “revenue vs. cuts” contributes to the limited perspective that prevents more fundamental solutions from entering even into public deliberation and discourse. Generally speaking, we the people are holding ourselves back even from being aware of more far-reaching proposals because of the distortions in the media’s “reporting” (or opining) as well as in the design of the sequestration itself. The fundamental question is whether such “holding back” is intrinsic to self-governance of and by the People.

Source:

“Cliffhanger,” Frontline, PBS, February 11, 2013.

Cavuto, Neil “Sequestration Really the End of the World?” Fox News. 20 February 2013.