US National Debt Tops $40 Trillion: Who Does Washington Owe and Why It Matters

The total U.S. national debt has surpassed $40 trillion for the first time in history, according to Treasury Department data released on August 19. This figure has doubled since the beginning of Donald Trump's first term in January 2017, when the national debt stood at $19.95 trillion.

Public debt has grown rapidly in the 2020s, especially during Trump's second term, prompting economists to warn that a toxic mix of heavy borrowing, increased spending, and low taxes could push the world's largest economy into crisis.

How Fast Is the Debt Growing?

During Trump's first term, national debt rose by $7.8 trillion, driven largely by COVID-19 pandemic response costs. Since his return to the White House in January 2025, debt has climbed an additional $3.8 trillion, bringing the combined increase over his two terms to $11.6 trillion. Under President Joe Biden (2021–2025), debt increased by $8.4 trillion as the government continued heavy borrowing and spending to combat the pandemic.

U.S. debt hit $39 trillion in March of this year, meaning it took less than five months to add another $1 trillion. By comparison, it took nearly 200 years for U.S. national debt to first top $1 trillion in 1981, according to analysis by the Committee for a Responsible Federal Budget (CRFB).

The Congressional Budget Office (CBO) projects debt will rise from 101% of GDP in 2026 to 120% by 2036, far exceeding the post-World War II record of 106%.

Why Has Debt Ballooned?

Crisis spending: Two major crises over the past two decades—the 2007–2009 recession and the COVID-19 pandemic (2020–2023)—forced the government to borrow and increase spending. The pandemic accounts for about one-third of the debt accumulated since 2017.

Insufficient tax revenue: Revenue from taxes and other sources has not kept pace with spending, especially as the U.S. spends more on pensions and healthcare for an aging population. Both Democratic and Republican administrations have failed to curb spending or raise taxes to close the gap. The U.S. spends about $7 trillion annually, with roughly 60% going to Social Security, Medicare, Medicaid, and veterans' care.

Higher interest rates: Interest rates stayed low until the pandemic, after which the Federal Reserve raised rates to fight inflation. The U.S. now spends about $1.1 trillion a year on debt interest, slightly more than defense spending. In the first ten months of fiscal year 2026, interest costs also surpassed healthcare spending, becoming the second-largest expenditure after pensions.

What Tax Cuts Has Trump Made?

Trump implemented deep corporate tax cuts through the 2017 Tax Cuts and Jobs Act, reducing the corporate rate from 35% to 21%. In 2025, he signed the "One Beautiful Bill Act," which made the 2017 tax law permanent, cut Medicaid spending by 12%, and raised the debt ceiling by nearly $5 trillion. Currently, individual income taxes account for about half of federal revenue, while corporate taxes make up only 9%.

Who Does the U.S. Owe?

Debt owed to domestic and foreign investors accounts for 80% (about $32 trillion) of total debt. Of that, roughly $21 trillion is domestic, including Fed holdings ($4.528 trillion), mutual funds ($5.195 trillion), pension funds ($1.135 trillion), state and local governments ($1.636 trillion), commercial banks ($2.083 trillion), and other institutions and individuals ($6.660 trillion).

Internationally, the U.S. owes Japan $1.203 trillion, the UK $889 billion, China $683 billion, and more than 30 other creditors. Foreign holdings of U.S. debt have risen from 5% in 1970 to 32% in 2025. The remaining $8 trillion is intragovernmental debt, which does not directly affect overall finances.

How Does Rising Debt Affect the U.S. Economy?

Analysts warn that uncontrolled debt growth could trigger an economic crisis such as hyperinflation or higher interest rates. Private investment risks decline due to safety concerns, slowing growth. Lawmakers may eventually be forced to implement austerity measures like tax increases, affecting social safety net programs. The consequences could last for years, with younger generations bearing a heavier burden. As the U.S. is a pillar of the global economy, a crisis here would have negative impacts on world markets.

Maya MacGuineas, president of CRFB, believes the first step is to commit to no new borrowing immediately and establish a bipartisan fiscal commission. However, this is difficult when the government has pledged to keep taxes low and cut spending while engaging in costly conflicts in the Middle East.