(Shola Lawal’s article from THE AL JAZEERA onc21 August 2026.)
US
debt hits $40 trillion: Who does Washington owe and why does it matter? Heavy
borrowing, increased spending and tax cuts by Democratic and Republican
administrations have long raised concerns.
Total
United States debt has surpassed $40 trillion for the first time in history,
according to a Department of the Treasury update on Wednesday. Ballooning debt,
especially during President Donald Trump’s second term, which began in January
last year, has raised concerns about a looming fiscal crisis for some time,
with economists fearing a toxic combination of heavy borrowing, increased
spending and lower taxes could land the world’s biggest economy in crisis.
The rising US debt comes despite Trump’s championing of cost-cutting and efficiency as a hallmark of his second term, with his Department of Government Efficiency (DOGE) initiative slashing between 250,000 and 350,000 federal jobs and cutting global aid since the start of last year. In May 2023, the Congressional Budget Office (CBO) predicted that the US would reach the $40 trillion mark in 2028.
Maya
MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB),
a budget watchdog, said in a statement, “$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.”
Here’s
what we know about why US debt is rising, and why it matters:
How fast is debt rising?
US
debt is growing much faster in the 2020s than it did in previous decades. Total
debt, which includes debt owed to others and what the government owes itself,
has doubled since January 2017, when Trump began his first term as president.
US debt at the time was $19.95 trillion.
During
Trump’s first term, public debt rose by $7.8 trillion, most of it because of
the cost of the COVID-19 pandemic response. Since his return to office in
January 2025, debt has grown by $3.8 trillion, bringing the total to $11.6
trillion across his two terms so far.
Under
Joe Biden’s administration from 2021 to 2025, the government continued to
borrow and spend heavily in response to the pandemic; debt rose by $8.4
trillion. US debt hit $39 trillion in March this year, meaning it took fewer
than five months to pile on an additional $1 trillion in debt.
By
comparison, it took close to 200 years for total US debt to cross $1 trillion
for the first time in 1981, according to an analysis by CRFB, although $1
trillion in 1981 would be worth $3.67 trillion in real terms today, after
inflation is taken into account.
The
CBO estimates that debt will rise from 101 percent of gross domestic product
(GDP) in 2026 to 120 percent in 2036. That is well above the previous US record
of 106 percent after World War II.
Why is debt ballooning?
The
soaring US debt “is an inevitable result of our demands for endless tax cuts,
benefit expansions, and defence investments, and our refusal to address
escalating Social Security and Medicare shortfalls,” Jessica Riedl, a budget
and tax fellow at the Brookings Institution think tank, told Al Jazeera.
“We
can blame politicians, but very few voters will back up their deficit concerns
with a willingness to personally accept new taxes or benefit reductions.
Sacrifice is reserved for our political opponents.”
Here
are some of the specific factors that experts say have contributed to the
fast-rising US debt.
Crisis spending
There
have been two major crises in nearly two decades, during which governments have
needed to borrow and increase spending. The 2007-09 recession was the first
crisis, while the second was the 2020-23 COVID-19 pandemic, which is linked to
about one-third of the debt run up since 2017, as borrowing under both the
Trump and Biden presidencies intensified.
Low tax revenue
Analysts
say another reason for rising borrowing is that tax and other revenues are not
keeping up with spending, especially as the US is spending more to fund
pensions and healthcare for an ageing population. Experts say Democratic and
Republican administrations alike have failed to rein in spending or raise taxes
to close this gap.
The
US spends about $7 trillion annually, with about 60 percent of that going to
Social Security Administration (SSA) payments, health insurance including
Medicare and Medicaid, and veterans’ care.
Revenues
are inadequate to meet these expenses. For example, in July, the US brought in
$334bn in individual income taxes, social insurance, corporate taxes and
others, according to the Treasury Department. However, it paid out $766bn,
almost double the revenue, in social security, health insurance, national
defence and interest payments.
Rising interest rates
Interest
rates remained low until the pandemic hit, at which point the Federal Reserve
raised rates to fight inflation.
Now,
the US is paying about $1.1 trillion annually to service its debt, slightly
more than it spends on defence. In the first 10 months of the 2026 budget year,
interest costs have also eclipsed health insurance spending and are now the
second-largest slice of spending after pensions. The US spends between $1.8
trillion and $2 trillion per year on federal retirement benefits – Social
Security – and state or local public pensions combined, according to data from
analysis group USA Facts.
What tax cuts has Trump introduced?
Despite
these rising costs, Trump has implemented deep tax cuts for businesses,
starting with his Tax Cuts and Jobs Act of 2017 during his first term, which
slashed the corporate tax rate from 35 percent to 21 percent.
He
followed that up in 2025 with his “One Beautiful Bill Act”, permanently
entrenching the 2017 law. Although the bill also cut Medicaid spending by 12
percent, it raised the debt ceiling by nearly $5 trillion to allow for this.
At
present, individual income taxes make up roughly half of federal revenues,
compared with only 9 percent from corporate income taxes. In between the two
Trump presidencies, the Biden administration also spent heavily on
infrastructure investment and clean energy subsidies.
Who does the US owe money to?
Public
debt borrowed from domestic and foreign investors makes up 80 percent – roughly
$32 trillion – of the gross debt, according to Treasury data.
About
$21 trillion of this public debt is owed domestically, to a variety of
creditors including the Federal Reserve ($4.528 trillion), which buys and sells
Treasury securities to influence federal interest rates and manage the money
supply, according to analysis by the Peter G Peterson Foundation.
Other
creditors are 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
($6.660 trillion).
Internationally,
the US is in debt to several countries and private investors. In 1970, total
foreign debt holders accounted for 5 percent of gross debt, but by 2025, they
made up 32 percent. That means while they are helping boost US economic
activity, more of the country’s income is being sent abroad in the form of
interest payments.
By
2025, the US owed Japan $1.203 trillion, the United Kingdom ($889bn), China
($683bn), as well as owing more than 30 other entities. Separately, another 20
percent of the gross national debt – about $8 trillion – is owed
intra-governmentally and therefore does not affect overall finances.
What does rising debt mean for the US economy?
Analysts
say the rising debt could potentially create an economic crisis for the US, in
the form of hyperinflation or higher interest rates, for example, if it goes
unchecked. As more debt piles on, there is a growing risk that private
investment will fall because of safety concerns, and as a consequence, economic
growth could slow down.
“We’re
already paying the cost. This debt is slowing growth, pushing up interest
rates, and worsening inflation,” Riedl of Brookings said.
In
2026, the US is expected to spend 19 percent of federal tax revenues on
interest payments. That share is expected to rise to 20 percent in a decade and
50 percent in three decades, “even under the rosiest scenarios,” she added.
“The longer we wait to make the difficult fiscal decisions, the more painful
and drastic those reforms will be.”
Lawmakers
may eventually be forced to respond with painful austerity measures such as
higher taxes, analysts say. Social safety net programmes could also be at risk.
It could take years to resolve, experts warn, and the consequences could be
intergenerational, with young people forced to pay more for many years.
The
rest of the world would be affected too: the US is a cornerstone of the global
economy, and a crisis there will likely hurt global markets.
The
first correcting step, MacGuineas of CRFB said, is to commit to zero new
borrowing immediately. Lawmakers must also set up a bipartisan fiscal
commission to scrutinise the issues, she said. With a commitment to keep taxes
low and reduce spending, while also engaging in a hugely expensive war in the
Middle East, this may be difficult to achieve, analysts say.
