Debtor Nation 2025

The size and pace of growth of the national debt are unsustainable. Over the last 12 months, the total public debt outstanding has grown by over $1.5 trillion. With the national debt at over $36 trillion, the United States’ debt-to-Gross Domestic Product (GDP) ratio now exceeds 120%, surpassing the peak reached after World War II.

Interest payments on the national debt are also climbing. In May, Moody’s downgraded the U.S. credit rating from AAA to Aa1. 

Still, the political will to address the national debt and federal budget deficits does not exist in meaningful numbers on either side of the political aisle. To get a clearer picture of why the national debt matters to taxpayers and future generations, how we got here, who holds this debt, and what would need to be done to rein it in, Reason Foundation built Debtor Nation.

Why the national debt matters

• The national debt is expensive: Debt incurs high interest costs, diverting taxpayer funds from productive uses to pay interest to bondholders.
• Debt burdens economic growth: Interest payments on the national debt consume a rising portion of the national budget and gross domestic product (GDP). This borrowing stifles economic growth by absorbing capital from the private sector, making borrowing more expensive for taxpayers and businesses.
• Debt imposes unfair costs on future generations: Future taxpayers are on the hook to pay for today’s deficits. They must accept either higher taxes, inflation, or reduced government services.
• The debt is becoming unaffordable: The current debt and projected reliance on debt increases the risk of higher borrowing costs, insolvency, and default.

How we got here 

• The annual U.S. debt-to-GDP ratio reached 120% in 2024, exceeding levels last seen immediately following World War II.
• Federal expenditures consistently outpace revenue, driving continued debt growth. Given that federal receipts bounce between 15% and 20% of GDP, spending more than 20% of GDP is simply not sustainable in the long term.
• Federal debt growth transcends party lines, driven by major events and policy decisions across presidential administrations and congresses.

Who holds the federal debt? 

• The federal debt is divided between intragovernmental holdings (primarily the Social Security Trust Fund) and debt held by the public.
• Public debt holders include domestic investors, foreign entities, and the Federal Reserve, which has significantly increased its holdings in recent years.
• Foreign ownership of U.S. debt represents a substantial portion, raising opportunities and potential economic stability risks.

Where does the federal government spend money? 

• Mandatory spending, including Social Security and Medicare, accounts for a significant portion of federal outlays, exceeding 65% of total annual expenditures.
• Interest payments on the national debt have reached historic levels, creating additional budget pressure.
• At $908 billion, defense spending remains the largest discretionary budget item, dwarfing other discretionary spending categories.

Conclusion 

You can view the full Debtor Nation data visualization tool here. The tool includes more insights into our national debt, along with a calculator that shows exactly what changes the federal government would need to make to help us climb out of the situation the national debt has put taxpayers and future generations in. 

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