US National Debt by Year Compared to GDP and Major Events

The U.S. national debt hit a new high of more than $27 trillion in October 2020. That's greater than the annual economic output of the entire country.

Throughout the years, recessions have increased the debt because they have lowered tax revenue. At the same time, Congress has spent more to stimulate the economy. Military spending has also been a big contributor, as has spending on benefits such as Medicare. In 2020, spending to offset the effects of the COVID-19 pandemic also added to the debt.

Although investors aren't currently worried about a U.S. debt default, that could change once the pandemic ends. In that case, ways to reduce the debt, such as raising taxes or cutting spending, will need to be considered.

How to Look at Debt by Year

It's best to look at a country's national debt in context. During a recession, expansionary fiscal policy, such as spending and tax cuts, is often used to spur the economy back to health. If it boosts growth enough, it can reduce the debt. A growing economy produces more tax revenues to pay back the debt.

The theory of supply-side economics says the growth from tax cuts is enough to replace the tax revenue lost if the tax rate is above 50% of income. When tax rates are lower, the cuts worsen the national debt without boosting growth enough to replace lost revenue.

During national threats, the U.S. increases military spending. For example, the U.S. debt grew after the September 11, 2001 attacks as the country increased military spending to launch the War on Terror. Between fiscal years 2001 and 2020, those efforts cost $6.4 trillion, including increases to the Department of Defense and the Veterans Administration.

The national debt by year should be compared to the size of the economy as measured by the gross domestic product. That gives you the debt-to-GDP ratio. That ratio is important because investors worry about default when the debt-to-GDP ratio is greater than 77%—that's the tipping point.

The World Bank found that if the debt-to-GDP ratio exceeded 77% for an extended period of time, it slowed economic growth. Every percentage point of debt above this level costs the country 0.017 percentage points in economic growth.

You can also use the debt-to-GDP ratio to compare the national debt to other countries. It gives you an idea of how likely the country is to pay back its debt.

Debt by Year Compared to Nominal GDP and Events

In the table below, the national debt is compared to GDP and influential events since 1929. The debt and GDP are given as of the end of the third quarter (unless otherwise noted) in each year to coincide with the end of the fiscal year. That's the best way to accurately determine how spending in each fiscal year contributes to the debt and to compare it to economic growth.