The total U.S. debt has surpassed $40 trillion for the first time in history, according to Wednesday’s Treasury Department update.
Rising debt, especially during President Donald Trump’s second term, which began last January, has long raised fears of an impending fiscal crisis, with economists worried that a toxic combination of massive borrowing, increased spending and tax cuts could tip the world’s largest economy into crisis.
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The rapid increase in U.S. debt comes as the non-governmental organization Department of Government Efficiency (DOGE) has cut between 250,000 and 350,000 federal workers and cut global aid since early last year, even as President Trump champions cost-cutting and efficiency as a hallmark of his second term.
In May 2023, the Congressional Budget Office (CBO) predicted that the size of the US economy would reach the $40 trillion level in 2028.
“$40 trillion in debt doesn’t just exist on government ledgers. It affects the entire economy and, in some ways, affects people’s wallets,” Maya McGuineas, chair of the budget watchdog Responsible Federal Budget Board (CRFB), said in a statement.
Here’s what we know about why U.S. debt is rising and why it matters.
How fast is debt increasing?
U.S. debt in the 2020s is growing at a much faster pace than in previous decades.
Total debt, including debts owed to others and the government’s own debt, has doubled since January 2017, when Trump began his first term as president. At the time, the U.S. debt was $19.95 trillion.
The public debt increased by $7.8 trillion during President Trump’s first term, much of it due to the cost of responding to the COVID-19 pandemic. Debt has increased by $3.8 trillion since he returned to office in January 2025, to a total of $11.6 trillion over his two terms.
Under the Biden administration from 2021 to 2025, the government continued to borrow and spend heavily in response to the pandemic. Debt increased by $8.4 trillion.
The US debt reached $39 trillion in March of this year, meaning it took less than five months to accumulate another $1 trillion in debt.
For comparison, it took nearly 200 years for total U.S. debt to exceed $1 trillion for the first time in 1981, but $1 trillion in 1981 is worth $3.67 trillion in real terms today, accounting for inflation, according to CRFB’s analysis.
CBO estimates that debt will rise from 101% of gross domestic product (GDP) in 2026 to 120% of gross domestic product (GDP) in 2036. This far exceeds the previous US record of 106%, which was set after World War II.
Why does debt increase?
crisis spending
Two major crises in almost 20 years have forced the government to borrow money and increase spending.
The 2007-2009 recession was the first crisis, the second was the 2020-23 coronavirus pandemic, which is responsible for about a third of the debt increase since 2017 as borrowing intensified during the Trump and Joe Biden presidencies.
tax revenue is too low
Analysts say another reason for the increase in borrowing is that taxes and other revenues have not kept up with spending, especially as the U.S. spends more on pensions and health care as its population ages.
Experts say that Democratic and Republican administrations alike have failed to curb spending or raise taxes to close the gap.
The United States spends about $7 trillion a year, about 60% of which goes toward Social Security Administration (SSA) payments, health insurance including Medicare and Medicaid, and veteran care.
Income is insufficient to cover these expenses. For example, in July, the United States introduced $334 billion in personal income taxes, social security, corporate taxes, etc., according to the Treasury Department.
However, it paid out $766 billion in social security, health care, national defense, and interest payments, almost double its revenue.
increase in interest rates
Interest rates remained low until the pandemic hit, at which point the Federal Reserve raised them to combat inflation.
Currently, the United States pays about $1.1 trillion a year in debt service, slightly more than it spends on defense. In the first 10 months of the 2026 budget year, interest costs also exceeded health care spending and are now the second-largest expense after pensions. Federal retirement benefits (Social Security) and state or local public pensions combine to spend between $1.8 trillion and $2 trillion a year, according to data from the analysis group USA Facts.
What are the tax cuts introduced by President Trump?
Despite these rising costs, Mr. Trump has implemented significant tax cuts for businesses during his first term, starting with the 2017 Tax Cuts and Jobs Act, which lowered the corporate tax rate from 35% to 21%.
He followed this up with the One Beautiful Bill Act of 2025, making the 2017 law permanent. The bill also cut Medicaid spending by 12%, but raised the debt ceiling by nearly $5 trillion to account for this.
Currently, personal income taxes account for about half of federal revenue, while corporate taxes only account for 9%.
Between the two Trump presidencies, the Biden administration also spent heavily on infrastructure investments and clean energy subsidies.
Who does the US owe money to?
According to Ministry of Finance data, public debt borrowed from domestic and foreign investors accounts for 80% of total debt (about $32 trillion).
According to an analysis by the Peter G. Peterson Foundation, about $21 trillion of this public debt is owed domestically to various creditors, including the Federal Reserve ($4.528 trillion), which buys and sells Treasury securities to influence federal interest rates and control the money supply.
Other creditors include mutual funds ($5.195 trillion), pension funds ($1.135 trillion), state and local governments ($1.636 trillion), commercial banks and depository institutions ($2.083 trillion), and other corporate and individual lenders ($6.66 trillion).
Internationally, the United States is in debt to several countries and private investors. In 1970, total external debt holders accounted for 5% of total debt, while in 2025 they accounted for 32%. This means that while they are helping to boost U.S. economic activity, more of the country’s revenue is flowing overseas in the form of interest payments.
By 2025, the United States will owe $1.203 trillion to Japan, the United Kingdom ($889 billion), China ($683 billion), and more than 30 other countries.
Separately, another 20% of the total national debt (approximately $8 trillion) is owed within the government and therefore has no impact on the overall public finances.
What does rising debt mean for the U.S. economy?
Analysts say that if debt growth is left unchecked, it could lead to an economic crisis in the United States in the form of hyperinflation and rising interest rates.
As debt increases, there is a greater risk that security concerns will reduce private investment, which could slow economic growth.
Analysts say lawmakers may ultimately be forced to respond with painful austerity measures, such as tax hikes. Social safety net programs may also be at risk.
Experts warn that the resolution could take years and the impact could be intergenerational, forcing young people to pay more over many years.
Other parts of the world will also be affected. The United States is the cornerstone of the world economy, and a crisis in the United States is likely to have a negative impact on global markets.
CRFB’s Mr McGuineas said the first corrective step would be to commit to bringing new borrowing to zero immediately. He also said lawmakers should create a bipartisan finance committee to scrutinize the issue. Analysts say this may be difficult to achieve given the country’s pledge to keep taxes low and cut spending while fighting costly wars in the Middle East.
