U.S. Debt Just Topped $40 Trillion: How We Got Here

Gross U.S. debt has surpassed $40 trillion, a new milestone in the country’s struggle to control its finances.

The country’s “total public debt outstanding” officially hit $40.047 trillion on Tuesday, the Treasury Department reported Wednesday, ticking up from $39.987 trillion a day earlier.

Reaching that threshold carries symbolic weight, but isn’t, by itself, economically significant. Most investors and economists care less about raw figures than other measures, like the ratio of debt to gross domestic product, which provides a better sense of an economy’s borrowing capacity.

And economists typically focus more on a different measure of government debt—that held by the public—which doesn’t include debt held within the government in Social Security trust funds. That number was $32.266 trillion on Tuesday.

Still, $40 trillion is a big number, likely to at least briefly draw attention to what economists broadly agree is an unsustainable fiscal trajectory. In recent days, rising long-term government borrowing costs—and a sudden reversal Wednesday after the Treasury announced plans to buy back more long-term debt—have underscored the stakes. Here is a look at how we got here and what it means:

Debt and deficits haven’t always been a problem in the U.S. Publicly held debt—now approaching World War II levels at about 100% of the country’s annual GDP—was just 31.5% of GDP in 2001 after four years in which the government ran budget surpluses.

Wars, the bursting of the dot-com bubble and tax cuts sent budgets off course in the early 2000s. The 2007–2009 recession supercharged the trend by draining tax revenues and prompting stimulus programs, as did the Covid-19 pandemic. Meanwhile, an aging population has led to increased spending on Medicare and Social Security. But revenues haven’t kept pace, with lawmakers repeatedly passing and extending tax cuts.

Debt is accumulated through annual budget deficits—when the government spends more than it collects in revenue. In recent years, deficits have been unusually large, at around 6% of GDP—a level typically reached only during wars or recessions.

As a result, the U.S. debt-to-GDP ratio is widely expected to keep rising—reaching 120% in 10 years and 175% in 30 years, according to the Congressional Budget Office. That is based on current law. If some tax breaks, such as for tips and overtime, are extended instead of expiring as scheduled, the debt would likely rise even more.

The breakdown of federal spending shows why meaningful cuts are so difficult. The vast majority of the government’s spending goes to programs that promise benefits to individuals, such as Social Security and Medicare. Trimming these would likely anger many voters.

Meanwhile, rising debt means higher interest payments, which aren’t optional either.

Everything else that the government pays for—federal salaries, office buildings, law enforcement—makes up a relatively small share of spending.

Since the 1960s, federal spending has grown substantially relative to the broader economy, while revenue, mostly tax receipts, has stayed about the same.

The government does most of its borrowing from the bond market by issuing securities known as Treasury bonds, notes and bills. These are bought by investors and institutions around the globe, whose makeup has shifted over the years.

In particular, the share of Treasurys held by foreign investors—both public- and private-sector buyers—has been falling. Hedge funds, counted as “households” in Fed records, have helped pick up the slack.

That has concerned some analysts because hedge funds typically buy Treasurys using borrowed money, which has sometimes caused them to dump bonds during times of market stress, such as when President Trump announced sweeping tariffs in April 2025. That has pushed bond prices down even further, leading to an increase in their yields, which play a major role in determining borrowing costs such as mortgage rates.

Generally, though, rising debt levels have done very little to upset the bond market, making a full-fledged fiscal crisis more of a theoretical concern than an urgent worry.

Investors are fully aware that the supply of bonds is going to keep climbing. And yet they keep buying Treasurys anyway, keeping yields relatively close to the short-term interest rates set by the Federal Reserve.

The U.S., in fact, has a big advantage over other countries because Treasurys are widely seen as the safe asset of choice by global investors. They benefit from a virtuous cycle: Investors like to own Treasurys because they are so liquid, or easy to buy and sell, compared with other government bonds. That demand in turn ensures that the bonds remain liquid—and has allowed, at least so far, the U.S. to keep borrowing with relative impunity.

The sheer scale of America’s $40 trillion debt is hard to fathom. The amount is significantly greater than U.S. annual GDP. That means even if all U.S. income went toward paying down the debt for a full year—rather than to things like salaries, corporate profits and investment—the federal government would still owe trillions, by this measure.

If Elon Musk helped pay down the debt by sacrificing the entirety of his nearly $1 trillion net worth—itself a mind-boggling sum—it would barely make a dent. The gross debt owed by the federal government is also nearly equal to what is owed by all U.S. households and businesses combined (excluding banks).