July 3, 2025 - Sizing Up the U.S. Debt

How economists evaluate the national debt.

President Trump’s domestic policy bill, which the House is debating now on the floor and is expected to vote on soon, would add $3.4 trillion to the federal debt over the next decade. That’s on top of $29 trillion the U.S. already owes.

Numbers that big can lose their meaning. But the debt is not all abstract; it’s money Americans enjoy today but future generations must pay off with interest. The interest America has to pay its lenders will exceed $1 trillion for the first time ever next year — more than we spend on Medicare.

But not all debt is created equal. A trillion dollars means something different in the U.S. than it does in, say, Ireland or Panama.

So how should Americans make sense of the debt? Economists have a few different ways of assessing that, beyond how big or small the total is. Today, I’ll break down three and explain how the U.S. fares on each.

1. Compare it to G.D.P.

Everything is relative. $29 trillion sounds like a lot — and it is. It’s among the biggest fiscal shortfalls ever recorded for a developed nation not at war. But the U.S. also has the largest economy in the world.

Economists often measure debt by how it compares to a country’s economic output, also known as G.D.P. America’s debt is now about the same size as its G.D.P. (Japan and Italy have also crossed that threshold, but few other countries have.)

The U.S. government is already slated to borrow an additional $21 trillion over the next decade. That, plus $3.4 trillion from the Republican bill, may soon push the debt well past the G.D.P.

2. Look at who owns it

Countries can issue bonds — tiny pieces of their debt — to investors at home and abroad.

Japan has the most debt of any wealthy nation relative to its G.D.P., but domestic investors own nearly 90 percent of it. That gives Japan’s economy a cushion. When the government pays interest on its debt, those outlays end up back in the hands of bondholders who reinvest the money locally.

Not so for foreign investment.

Foreigners hold nearly a third of America’s debt. That translates to $8.5 trillion, all of which the U.S. must eventually ship back to bondholders abroad. It’s a missed opportunity for domestic investment, and thus for economic growth.

3. Consider what’s coming

As the world changes, our financial needs change, so our debt may stretch or shrink. We can’t predict the future, but there are certain things we can be reasonably sure about.

Tax revenue. The version of Trump’s policy bill that passed through a divided Senate on Tuesday locks in low tax rates for decades, my colleagues Andrew Duehren and Colby Smith explained on “The Daily.” Lower rates mean less tax revenue.
Entitlement spending. Two-thirds of the federal budget is already set aside for mandatory programs like Social Security, Medicare and Medicaid, whose spending levels are set by laws rather than annual appropriations.
Interest payments. Installments are due at regular intervals, with rates set far in advance, so we know approximately how much the government will need to pay out.

There are also things we can’t know, like whether Trump’s tax cuts will juice the economy, or whether his tariffs will raise enough money to offset costs.

But economists have enough information to forecast the direction of U.S. debt, and the arithmetic is unforgiving. The Congressional Budget Office estimates that America’s debt will grow 56 percent larger than its G.D.P. within 30 years. That’s uncharted territory for the U.S. — and the world.

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