The total debt of the United States has surpassed $40 trillion for the first time, according to a Wednesday update from the Department of the Treasury. The debt includes money the government owes to outside investors as well as obligations between federal government accounts.
The milestone reflects years of borrowing that accelerated during the 2020–23 COVID-19 pandemic and continued under successive administrations. The Congressional Budget Office had predicted in May 2023 that the country would reach $40 trillion in 2028.
Why US debt is rising so quickly
US debt stood at $19.95 trillion in January 2017 and has since doubled. It rose by $7.8 trillion during Donald Trump’s first term, much of it linked to the COVID-19 response, and increased by $8.4 trillion under the Biden administration from 2021 to 2025. Since Trump returned to office in January 2025, debt has grown by $3.8 trillion, bringing the increase across his two terms so far to $11.6 trillion.
The government is spending more than it collects. The United States spends about $7 trillion annually, with roughly 60 percent directed to Social Security, Medicare and Medicaid, and veterans’ care. In July, the Treasury recorded $334 billion in revenue against $766 billion in payments for social security, health insurance, national defence and interest costs.
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- The 2007–09 recession and the COVID-19 pandemic were the two major crises that drove substantial emergency borrowing over the past two decades.
- The source material links about one-third of the debt increase since 2017 to the pandemic response.
- An ageing population is increasing spending on pensions and healthcare while tax and other revenues remain insufficient.
Tax cuts and the rising cost of interest
Trump’s 2017 Tax Cuts and Jobs Act reduced the corporate tax rate from 35 percent to 21 percent. His 2025 One Beautiful Bill Act permanently entrenched the 2017 law, cut Medicaid spending by 12 percent and raised the debt ceiling by nearly $5 trillion. Individual income taxes provide roughly half of federal revenue, while corporate income taxes provide about 9 percent.
Higher interest rates have made existing borrowing more expensive. The United States now pays about $1.1 trillion a year to service its debt, slightly more than it spends on defence. During the first 10 months of the 2026 budget year, interest costs became the second-largest spending category after pensions and exceeded health insurance spending.
Who holds the debt
Public debt held by domestic and foreign investors accounts for about 80 percent of gross debt, or roughly $32 trillion. About $21 trillion is owed domestically. Creditors include the Federal Reserve, mutual funds, pension funds, state and local governments, commercial banks and other corporate and individual lenders.
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Foreign holders accounted for 32 percent of gross debt in 2025, up from 5 percent in 1970. In 2025, the United States owed Japan $1.203 trillion, the United Kingdom $889 billion and China $683 billion, alongside obligations to more than 30 other entities. A separate 20 percent of gross national debt, about $8 trillion, is owed within the government and does not affect overall finances in the same way as debt held outside the government.
What the milestone could mean
Analysts warn that unchecked debt could increase the risk of an economic crisis, including higher interest rates or hyperinflation. Rising government borrowing could also discourage private investment and slow economic growth if investors become more concerned about financial stability.
The Congressional Budget Office estimates that debt will rise from 101 percent of gross domestic product in 2026 to 120 percent in 2036, above the previous US record of 106 percent after World War II. Potential responses identified by analysts include higher taxes, spending cuts and changes to social safety-net programmes, with effects that could last across generations and extend to global markets.
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