Will US National Debt Reach $40 Trillion?

The US federal deficit has exceeded $1 trillion annually since 2020 (COVID stimulus) and shows no structural trend toward reduction. Fiscal year 2023 deficit: $1.69 trillion. Fiscal year 2024 deficit: $1.83 trillion. CBO baseline projects $2.0T+ deficits through the late 2020s under current policy assumptions. The deficit is structural — not cyclical — meaning even in periods of strong economic growth, the gap between tax revenues and expenditures remains large. The TCJA (Tax Cuts and Jobs Act) individual provisions expire after 2025; extending them (as the Trump administration has signaled) would add approximately $4.6T to deficits over 10 years. Not extending them would result in tax increases affecting 80% of American households. The political economy makes deficit reduction extremely difficult regardless of which party controls Congress.

Federal interest payments on the national debt exceeded $1 trillion for the first time in US history in fiscal year 2024, driven by the combination of higher debt levels and higher interest rates (the Fed's post-COVID rate cycle raised the average interest rate on federal debt from ~1.5% in 2021 to ~3.5% by 2024-2025). Interest is now the single largest federal expenditure item — exceeding defense ($895B), Medicare ($869B), and Medicaid ($617B). Every $1T increase in federal debt at current average rates adds approximately $35-40B in annual interest expense. Interest payments are legally mandatory — the US cannot selectively withhold interest payments on Treasuries without triggering a sovereign default with catastrophic market consequences. This creates a self-reinforcing debt spiral: rising debt increases interest costs, which increases the deficit, which increases debt.

Social Security and Medicare are the two largest mandatory spending programs and both face structural cost pressures from demographic shifts. The 73 million Baby Boomers (born 1946-1964) are fully in retirement age by 2026, maximizing the dependency ratio. Social Security will exhaust its Trust Fund reserves by 2033 under current CBO projections, requiring either a 23% benefit cut or approximately $7.6T in additional funding over 10 years. Medicare's Hospital Insurance Trust Fund faces depletion by 2036. These programs collectively cost approximately $2.5T annually and are growing at 4-6% per year — faster than nominal GDP growth (3-4%). Reforming entitlements is politically near-impossible: both parties have avoided structural changes to Social Security and Medicare for 40 years despite fiscal trajectory warnings.

The Tax Cuts and Jobs Act (2017) individual tax provisions — lower marginal rates, doubled standard deduction, expanded child tax credit — expire at end of 2025 unless Congress acts. Extending all provisions adds an estimated $4.6T to deficits over 10 years (CBO, 2024). The Trump administration and Republican-controlled Congress have signaled intent to extend most provisions, potentially with additional tax cuts. Democrats have proposed extending only the provisions affecting households below $400K income while allowing upper-bracket cuts to expire. The net fiscal impact of the legislative outcome ranges from +$1.5T (partial extension) to +$5T+ (full extension with new cuts) over 10 years — all scenarios increase the debt above the 'current law' CBO baseline and pull forward the $40T milestone.

The sustainability of debt depends not on absolute levels but on the debt-to-GDP ratio. US nominal GDP is approximately $29T (2025), with debt-to-GDP at approximately 120% — already above the IMF's general warning threshold of 90%. For debt-to-GDP to stabilize, nominal GDP growth must exceed deficit growth. The US economy grows at approximately 2-2.5% real GDP + 2-2.5% inflation = 4-5% nominal GDP growth (~$1.1-1.5T per year). However, with deficits of $1.7-2.0T per year, debt is growing faster than the economy in nominal terms, meaning debt-to-GDP will continue rising. Under CBO baseline projections, debt-to-GDP reaches 130-135% by the end of the decade — entering territory historically associated with fiscal stress events in comparable sovereigns.

The US debt ceiling is a statutory limit on federal borrowing that requires Congressional votes to raise. Debt ceiling crises (2011, 2013, 2021, 2023) have generated short-term market volatility but have ultimately been resolved without default — Congress has never actually allowed the Treasury to default on its obligations. The debt ceiling is suspended or raised approximately every 1-2 years. While the political theater around debt ceiling debates can create market volatility and short-term Treasury yield spikes, the ceiling has never actually prevented debt accumulation — it merely creates periodic resolution crises. The $40T milestone will be reached regardless of debt ceiling mechanics; the only question is timing.

“The CBO's January 2026 Budget and Economic Outlook projects federal debt held by the public — the standard measure excluding intragovernmental debt — reaching $38.5T in FY2026 and $40.8T in FY2027. Including intragovernmental debt (Social Security and Medicare trust funds), total federal debt would exceed $42T in FY2026 and $45T by FY2028. CBO projects a cumulative 10-year deficit of $22.1T (2026-2035) under current law, with annual deficits never falling below $1.6T in the decade. CBO notes that interest costs will represent the fastest-growing category of federal spending, reaching 3.9% of GDP by 2035 — the highest share since post-WWII debt retirement period.”

Quelle: Congressional Budget Office (CBO), January 2026 Budget and Economic Outlook

“The CRFB, a non-partisan fiscal watchdog, published its 'Debt Tracker' showing the US on pace to cross $40T in nominal total debt (including intragovernmental) in calendar year 2026 — approximately one year ahead of the purely public debt CBO projection. The CRFB emphasizes that the interest cost spiral is the most dangerous element: at projected trajectories, net interest payments alone will consume 15-18% of federal revenues by 2030, leaving proportionally less for discretionary spending on defense, infrastructure, and social programs. CRFB has called for a 'fiscal responsibility commission' modeled on the 1983 Greenspan Social Security Commission to develop a bipartisan solution.”

Quelle: Committee for a Responsible Federal Budget (CRFB)

“The IMF's October 2025 Fiscal Monitor issued an unusually direct warning about US fiscal trajectory, describing it as 'a growing concern for global financial stability' given the dollar's reserve currency role. IMF economists noted that the US is a 'significant outlier' among advanced economies in running structural primary deficits (spending exceeds revenues even before interest payments) at full employment — typically deficits of this size occur only during recessions. The IMF projects US gross debt-to-GDP reaching 131% by 2029 and 140% by 2033 under current policy, noting that 'the window for corrective action without market disruption is narrowing.'”

Quelle: International Monetary Fund (IMF) Fiscal Monitor

“Dalio, who has studied historical debt cycles across 500 years of economic history, argued in a September 2025 LinkedIn essay that the $40T milestone 'matters symbolically more than financially.' His analysis identifies the critical threshold as when interest payments consume 20-25% of federal revenues — a level he projects being reached around 2028-2030. At that point, the Treasury faces the 'debt trap': raising rates to control inflation increases debt service costs, while printing money to reduce debt burdens triggers currency debasement inflation. Dalio has explicitly cited Bitcoin and gold as 'debt-cycle hedge assets' — investments that preserve value during sovereign debt crises. He has increased Bridgewater's alternative asset allocation from <1% to approximately 3% of the fund.”

Quelle: Ray Dalio, Bridgewater Associates Founder

“Treasury Secretary Scott Bessent's January 2026 testimony to the Senate Finance Committee maintained the official position that US debt is manageable given its unique characteristics: the dollar comprises ~58% of global central bank reserves, the US Treasury market is the world's largest and most liquid bond market ($27T+ outstanding), and US GDP growth and tax base provide sufficient revenues to service debt at current levels. Bessent noted that average duration of US debt has been extended to 6+ years, providing insulation from near-term rate increases. However, Bessent also acknowledged that debt stabilization requires either revenue increases or spending cuts — implicitly acknowledging the trajectory is not self-correcting.”

Quelle: US Treasury Department