Money & Finance › Government agencies & regulation › Fiscal policy: Congress, taxes and spending
The national debt and federal deficits
Since 1790; about $40T in 2026· Concept
Fact, law or dataA rule, statute, definition or measured number.
The total the federal government owes, built up from each year's deficit: spending minus tax revenue.
See it on the Money & Finance map →How it works
A deficit is one year's shortfall; the debt is the running total, financed by selling Treasury securities. Gross debt passed $38 trillion in October 2025 and is about $40 trillion in 2026. Over $30 trillion is 'held by the public' (investors, foreign governments, the Fed); the rest is owed to federal trust funds such as Social Security's. The fiscal 2025 deficit was about $1.8 trillion, and net interest reached roughly $1 trillion a year, more than defense spending.
Why it matters
The debt sets how much of the budget goes to interest and how many Treasuries markets must absorb, which feeds into long-term rates, including mortgage and commercial real estate loan rates.
Think of it like
The deficit is one year's negative cash flow; the debt is the loan balance that negative cash flow keeps adding to, with interest.
Facts, rules and data
Treasury's daily 'Debt to the Penny' and Monthly Treasury Statements; CBO budget outlooks. Records run back to Hamilton's 1790 funding plan; Andrew Jackson nearly paid it off in 1835, the only time.
Debates and risks
How much debt is too much is unresolved: there is no agreed threshold, and a famous 90%-of-GDP danger line (Reinhart and Rogoff, 2010) was weakened by a 2013 spreadsheet error.
Inside this (1)
Connections (9)
▸US Treasury securities are how the US finances The national debt and federal deficitsFact, law or data
The connection
The Treasury covers each deficit, and repays maturing debt, by auctioning new bills, notes and bonds. Marketable Treasuries, about $30 trillion, make up nearly all the debt held by the public; special non-traded securities issued to trust funds like Social Security's make up most of the rest.
When and why
Since Hamilton's 1790 funding plan; today the Treasury holds hundreds of auctions a year, with big banks called primary dealers expected to bid.
How we know
Treasury's Monthly Statement of the Public Debt lists every security outstanding; auction results are published at TreasuryDirect.gov, where individuals can also buy directly.
Debates and risks
How to split borrowing between short bills and long bonds is debated; heavier bill issuance since 2023 may have eased long-term rates but raises refinancing risk.
▸The US dollar as the world's reserve currency makes it cheaper to fund The national debt and federal deficitsMainstream view
The connection
Central banks, foreign investors and global banks want dollar assets for reserves, trade and collateral, and Treasuries are the main one. That steady demand lets the US borrow at lower rates than its debt level alone might imply; researchers call the discount a 'convenience yield'. This is the mainstream view, though its size is debated.
When and why
Since the dollar's postwar rise at Bretton Woods (1944); foreigners hold about $9 trillion of Treasuries, roughly 30% of the public debt, down from about half around 2008.
How solid is the link?
Treasury's TIC data on foreign holdings; Krishnamurthy and Vissing-Jorgensen (2012) estimated Treasuries' safety-and-liquidity premium averaged about 0.7 percentage points from 1926 to 2008.
Debates and risks
Whether the privilege is eroding: in April 2025 Treasury yields rose while the dollar fell, unusual in a sell-off, and central banks have been buying gold.
▸Modern Monetary Theory (MMT) downplays the danger of The national debt and federal deficitsExperts disagree
The connection
MMT argues a country borrowing in its own currency cannot be forced to default, so the debt total matters less than inflation. Federal debt, in this view, is simply the private sector's savings held as safe dollar assets, and interest rates are a policy choice. Most economists reject this, citing interest costs, bond-market limits and inflation risk.
When and why
Developed from the 1990s by Warren Mosler, L. Randall Wray and others; Stephanie Kelton's 2020 book The Deficit Myth popularized it during record pandemic deficits.
How solid is the link?
This is a debated theoretical claim, not a measured link. Supporters cite Japan's debt above 200% of GDP with low rates; critics cite the 2021–22 inflation.
Debates and risks
Whether Congress would actually raise taxes fast enough to curb inflation, as MMT assumes, and where the real limit on debt lies, are unresolved.
▸The national debt and federal deficits now exceeds 100% of GDP: measuring the size of the economyFact, law or data
The connection
Economists compare debt to GDP because the economy's output is the tax base that services it. Debt held by the public reached about 100% of GDP in 2025, near the 1946 World War II record of 106%; gross debt is about 125%. The ratio falls when growth plus inflation outpace interest rates, and rises with deficits.
When and why
US-wide; after 1946 the ratio fell to about 24% by 1974 through growth, inflation and near-balanced budgets, then climbed after 2008 and 2020.
How we know
CBO and Treasury debt data set against the Commerce Department's GDP figures; CBO's 2025 outlook projected debt held by the public near 118% of GDP by 2035.
Debates and risks
No one knows the ratio at which borrowing costs spike; Japan carries far more debt cheaply, while smaller countries have hit crises at much lower levels.
▸Fiscal policy: Congress, taxes and spending accumulates deficits into The national debt and federal deficitsFact, law or data
The connection
Congress sets spending and tax laws; when spending exceeds revenue, the Treasury borrows the difference by selling securities, and that year's deficit adds to the debt. In fiscal 2025 the government spent about $7.0 trillion and collected about $5.2 trillion. Interest on the accumulated debt then adds to future deficits.
When and why
US-wide since 1790; the last surplus year was 2001, and the deficit peaked near $3.1 trillion in pandemic-year 2020.
How we know
Treasury's Monthly Treasury Statement and CBO budget reports; the debt rises each year by roughly the deficit plus other financing needs.
Debates and risks
Economists disagree on how fast deficits should shrink and whether to rely on tax increases, spending cuts or growth; no plan has broad political support.
▸The debt ceiling caps borrowing for The national debt and federal deficitsFact, law or data
The connection
The ceiling limits the total of almost all federal debt, including what trust funds hold. It does not stop deficits, which spending and tax laws already set. When debt hits the limit, Treasury uses accounting 'extraordinary measures' for months; if those ran out, it could not pay all bills on time, so Congress raises or suspends it.
When and why
Nationwide since 1917; the limit was reset at $36.1 trillion in January 2025 and raised to $41.1 trillion in July 2025.
How we know
Treasury reports on debt subject to the limit and letters to Congress; the 2011, 2013 and 2023 standoffs each ended with a law raising or suspending the cap.
Debates and risks
Whether the ceiling restrains borrowing at all is doubted, since Congress always raises it; many economists favor abolishing it. Denmark is the only other democracy with a similar cap.
▸Social Security Administration (SSA) faces a trust-fund shortfall that pressures The national debt and federal deficitsFact, law or data
The connection
Since 2021 Social Security has paid out more than its total income, so it redeems trust-fund Treasury bonds. To pay cash for them, the Treasury must borrow from the public, raising publicly held debt. When the funds run out, projected for 2034, benefits would be cut about 19% automatically unless Congress adds money, which would deepen deficits.
When and why
US-wide; the trust funds held about $2.7 trillion at the end of 2024, built up mostly after the 1983 reforms raised payroll taxes.
How we know
The Social Security Trustees Report and CBO's long-term budget outlook, which show rising Social Security and Medicare costs as the main drivers of future deficits.
Debates and risks
Economists dispute whether the trust funds are real savings or just an accounting entry, since the Treasury already spent the money it borrowed from them.
▸Stablecoins as major buyers of Treasury bills may help finance The national debt and federal deficitsExperts disagree
The connection
Supporters, including Treasury Secretary Scott Bessent, say stablecoins create new buyers for government debt, lowering borrowing costs on a debt of about $40 trillion. Skeptics reply that much of the money comes from deposits and money funds that already held bills, so net new demand is small, and it favors short bills that must be rolled over often.
When and why
A Washington debate since 2025, as the GENIUS Act passed and Treasury leaned on bill issuance.
How solid is the link?
Uncertain: holdings are measurable, but how much demand is truly new cannot be observed directly.
Debates and risks
Whether relying on stablecoin demand nudges Treasury toward more short-term borrowing, raising rollover risk.
▸Flow of funds: the Fed's Z.1 map of who owes what to whom tracks who holds The national debt and federal deficitsFact, law or data
The connection
Z.1's table for Treasury securities lists every holding sector: the Fed, foreigners, money market funds, banks, pensions, insurers, state and local governments and households. It shows, for instance, that foreigners' share shrank as money funds and households bought more. Analysts use it to see who has absorbed rising deficits.
When and why
Z.1 table L.210, published quarterly by the Fed Board in Washington.
How we know
Its totals reconcile with Treasury's own debt reports and with TIC foreign-holder data.
Debates and risks
The household category is a residual that includes hedge funds and nonprofits, so who exactly holds those Treasuries is unclear.