It quadrupled in 18 years! How did the US accumulate $40 trillion in debt in less than a generation?

Key drivers: 37% stems from tax cuts enacted during the Bush and Trump administrations; 33% from bipartisan increases in social security, healthcare, and other welfare spending; and 28% from emergency relief spending during the two economic recessions and the COVID-19 pandemic. Furthermore, 77% of the debt originates from bipartisan legislation, making it difficult to attribute responsibility solely to one party.

The U.S. national debt officially surpassed the $40 trillion mark this week, two years ahead of schedule. Behind this milestone figure lies the combined force of tax cuts, welfare expansion, and crisis bailouts, and politicians from both parties in the U.S. are equally culpable in this fiscal gamble.

In 2001, the U.S. federal government had achieved a fiscal surplus for four consecutive years, and the Congressional Budget Office (CBO) even predicted that the national debt would be essentially zero by 2009. However, reality went to the other extreme—after the national debt reached $10 trillion in 2008, it quadrupled in the following 18 years. Marc Goldwein, senior vice chairman of the Committee on Federal Budget (CRFB), warned that "a debt spiral has begun," and that the current fiscal deficit rate of around 6% has historically only occurred during times of war or deep recession .

Currently, the cost of paying interest on debt alone accounts for 15% of all US federal government spending, exceeding defense spending. As bond vigilantes demand higher risk premiums due to fiscal risks, the high debt is not only severely straining the national budget but is also driving up borrowing costs across a wider range of sectors of the economy.

Meanwhile, the ever-expanding debt burden is directly impacting financial markets, pushing the yield on 30-year US Treasury bonds above 5.30%, reaching its highest level since 2007. Gold prices have risen 156% over the past five years, reaching $4,575 per ounce, reflecting deep market concerns about the long-term weakening purchasing power of the US dollar.

Three driving forces: tax cuts, welfare, and crisis bailouts

According to Yahoo Finance, a detailed analysis released by the Committee on Federal Budget in 2024 breaks down the causes of the $40 trillion in US debt into three main sources. This analysis does not yet include the more than $4 trillion in debt that Trump's "Big Beauty Act" is expected to add.

Tax cuts (37%) : The massive tax cuts implemented during the Bush administration and the tax cuts of Trump's first term together account for 37% of the current debt. These tax cuts have been repeatedly extended since their inception and have often received support from Democratic lawmakers, continuously suppressing fiscal revenue.

Benefits spending expansion (33%) : An aging population has driven a significant expansion of Medicare, and Social Security, Medicare, and Medicaid now account for about half of the federal budget. This increase in spending contributes 33% of the debt, and it has been promoted by both parties.

Economic recession and pandemic relief (28%) : The remaining 28% was contributed by emergency fiscal stimulus during the two economic recessions and the COVID-19 pandemic – including direct subsidy checks, emergency business loans and expanded unemployment benefits.

Bipartisan collusion: 77% of debt stems from bipartisan legislation

It is worth noting that the attribution of responsibility for this fiscal mismanagement is far more complex than what is presented in partisan narratives.

By party affiliation, bills passed solely by Republicans account for 8% of the current debt, while bills passed solely by Democrats contribute 12%. However, a staggering 77% of the U.S. national debt comes from bills passed by both parties.

This data means that political narratives that attribute the debt problem to a single party are untenable. Tax cuts received Democratic support when they were extended, welfare expansion bills received Republican endorsement when they were passed, and crisis bailouts have consistently passed with bipartisan majority votes.

From Surplus to Abyss: An 18-Year Fiscal Reversal

2001 was a watershed year in U.S. fiscal history. At that time, the federal government surplus reached 1.2% of GDP, and the baseline forecast of the Congressional Budget Office (CBO) painted an optimistic picture of debt gradually being reduced to zero.

However, a series of subsequent policy choices completely altered this trajectory. The wars in Afghanistan and Iraq, the bursting of the dot-com bubble, and the enactment of massive tax cuts rapidly eroded the base of fiscal revenue.

National debt climbed from less than $6 trillion in 2001 to $10 trillion in 2008, and has accelerated ever since, crossing the $40 trillion threshold two years ahead of schedule in 2026.

According to The Wall Street Journal, the outstanding public debt, excluding the Social Security Trust Fund, is currently approximately $32.3 trillion. In fiscal year 2026, which begins in October, government spending has already exceeded its revenue by $1.8 trillion.

The latest forecasts show that the U.S. government will face a deficit of $2.1 trillion by the end of the fiscal year on September 30.

The latest forecast from the Congressional Budget Office shows that the U.S. debt will rise to 120% of GDP by 2036 and further expand to 156% by 2055. The analysis from the Federal Budget Committee is blunt:

"Without these tax cuts and increased spending, the U.S. national debt could have been fully paid off."

The $40 trillion mark was reached two years ahead of schedule, and the Trump administration's "Big Beauty Act" is expected to add more than $4 trillion to the debt on top of that, which means the pace of debt expansion may accelerate further.

Market transmission: the chain reaction between interest rates, exchange rates, and asset prices

The $40 trillion debt is not an abstract figure; its impact has permeated markets and the economy through multiple channels.

Interest rate pressures : A massive debt supply has pushed up long-term Treasury yields, with the 30-year Treasury yield recently hitting a near 18-year high of 5.30%. Bond vigilantes—bond investors demanding higher risk premiums due to concerns about the government's long-term debt repayment capacity—are becoming a significant force weighing on the bond market. Treasury Secretary Bessant recently announced a buyback program of at least $4 billion in long-term Treasury bonds, signaling that the authorities believe current yield levels do not reflect fundamentals.

The aftereffects of quantitative easing : Some experts point out that excessive debt may indirectly lead to excessive money supply. The Federal Reserve's quantitative easing operation, which uses bond purchases to lower yields, has significantly expanded the money supply since the Great Recession, pushing up the prices of financial assets such as stocks and real estate, while exacerbating the cost of living pressure on those who do not hold financial assets.

Gold and Dollar Depreciation Expectations : High debt levels are one of the core arguments supporting the investment logic of dollar depreciation. Gold prices have risen 156% cumulatively over the past five years, currently trading at $4,575 per ounce, with a nearly 14% increase in the past month. If investors believe that the purchasing power of the dollar will continue to decline, the allocation value of gold as a hard asset will continue to stand out.

Narrowing fiscal space : With a deficit of $1.8 trillion recorded so far in fiscal year 2026, interest expenses accounting for 15% of the fiscal budget means that the government's available funds in other areas such as education and infrastructure are being continuously squeezed, which will drag down the long-term potential for economic growth.