The U.S. national debt hit a new high of more than $28 trillion on March 1, 2021, and it continues to hover at or just below $28 trillion. 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 and 2021, 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.
- The U.S. national debt hit a new high of $28 trillion in March 2021.
- The debt-to-GDP ratio gives insight into whether the U.S. has the ability to cover all of its debt.
- A combination of recessions, defense budget growth, and tax cuts has raised the national debt-to-GDP ratio to record levels.
- The U.S. cannot afford to default on its debt without major global economic consequences.
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.
Major events, like wars and pandemics, can increase the national debt.
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.
From 1947-1976, debt and GDP are given at the end of the second quarter since, during that time, the fiscal year ended on June 30. For years 1929-1946, debt is reported at the end of the second quarter, while GDP is reported annually since quarterly figures are not available.
|End of Fiscal Year||Debt (in billions, rounded)||Debt-to-GDP Ratio||Major Events by Presidential Term|
|1930||$16||17%||Smoot-Hawley reduced trade|
|1931||$17||22%||Dust Bowl drought raged|
|1932||$20||34%||Hoover raised taxes|
|1933||$23||40%||New Deal increased GDP & debt|
|1936||$34||40%||Tax hikes renewed depression|
|1937||$36||39%||Third New Deal|
|1938||$37||42%||Dust Bowl ended|
|1940||$43||42%||FDR increased spending & raised taxes|
|1941||$49||38%||U.S. entered WWII|
|1946||$269||118%||Truman's 1st term budgets & recession|
|1950||$257||86%||Korean War boosted growth and debt|
|1953||$266||68%||Recession when war ended|
|1954||$271||69%||Eisenhower's budgets & Recession|
|1958||$276||57%||Eisenhower's 2nd term & recession|
|1959||$285||55%||Fed raised rates|
|1961||$289||51%||Bay of Pigs|
|1962||$298||49%||JFK budgets & Cuban missile crisis|
|1963||$306||48%||U.S. aids Vietnam, JFK killed|
|1964||$312||46%||LBJ's budgets & war on poverty|
|1965||$317||43%||U.S. entered Vietnam War|
|1969||$354||35%||Nixon took office|
|1973||$458||32%||Nixon ended gold standard & OPEC oil embargo|
|1974||$475||31%||Watergate & budget process created|
|1975||$533||32%||Vietnam War ended|
|1978||$772||33%||Carter budgets & recession|
|1980||$908||32%||Volcker raised fed rate to 20%|
|1981||$998||31%||Reagan tax cut|
|1982||$1,142||34%||Reagan increased spending|
|1983||$1,377||38%||Jobless rate 10.8%|
|1984||$1,572||39%||Increased defense spending|
|1986||$2,125||46%||Reagan lowered taxes|
|1988||$2,602||50%||Fed raised rates|
|1990||$3,233||54%||First Iraq War|
|1993||$4,411||64%||Omnibus Budget Act|
|1998||$5,526||61%||LTCM crisis & recession|
|2001||$5,807||55%||9/11 attacks & EGTRRA|
|2002||$6,228||57%||War on Terror|
|2003||$6,783||59%||JGTRRA & Iraq War|
|2005||$7,933||61%||Bankruptcy Act & Katrina.|
|2006||$8,507||62%||Bernanke chaired Fed|
|2008||$10,025||68%||Bank bailout & QE|
|2009||$11,910||82%||Bailout cost $250B ARRA added $242B|
|2010||$13,562||91%||ARRA added $400B, payroll tax holiday ended, Obama Tax cuts, ACA, Simpson-Bowles|
|2011||$14,790||95%||Debt crisis, recession and tax cuts reduced revenue|
|2013||$16,738||100%||Sequester, government shutdown|
|2014||$17,824||102%||QE ended, debt ceiling crisis|
|2015||$18,151||100%||Oil prices fell|
|2017||$20,245||104%||Congress raised the debt ceiling|
|2018||$21,516||104%||Trump tax cuts|
|2020||$27,748||129%||COVID-19 & CARES Act|