How did US debt approach $40 trillion — and who pays for it?

The gross national debt of the United States officially reached $40 trillion for the first time in history this week, according to the US Treasury. This comes as the government continues to spend more than it earns, including on defence, Social Security and interest on the debt.

The latter alone now costs the government more than $1 trillion a year.

The milestone came as long-term US Treasury yields reached multi-year highs at the beginning of the week, reflecting investor concerns about inflation, global tensions and the country’s ballooning debt.

The more interest a country pays, the faster its debt grows.

The national debt has risen as the US borrows to cover repeated budget deficits. Higher interest costs add to spending, requiring further borrowing and risking a vicious cycle of rising debt.

Interest is paid from federal revenues, principally taxes. When revenues are insufficient, the government borrows more, passing part of the cost to future budgets and taxpayers.

“Based on average salaries, it would take a US worker more than 615 million years to earn the equivalent of America’s $40 trillion national debt, which itself has doubled in a decade,” says Dan Coatsworth, head of markets at AJ Bell.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement: “$40 trillion of debt doesn’t exist solely on the government’s ledgers; it is felt throughout the economy and finds its way to the pocketbooks of people one way or another”.

She warned that “the more we borrow, the more we exacerbate inflation, squeeze out other priorities in the budget, and leave ourselves vulnerable to emergencies at home and turmoil abroad.”

Yes, the US debt stock in absolute terms dwarfs that of every other major economy in nominal terms.

However, it is not the country with the heaviest debt burden. The enormous debt of the world’s biggest economy appears less alarming when looked at from the perspective of the strength of the economy behind it. This shows the size of the burden relative to the country’s total economic output and is therefore considered a better indicator of its fiscal position than the headline debt figure alone.

The IMF projects that US general government gross debt will reach $40.7 trillion in 2026, compared with a nominal GDP of $32.4 trillion. That would put debt at 125.8% of GDP, up from 103.7% in 2012, showing that government debt has grown faster than the economy over the period. The figures come from the IMF’s April 2026 World Economic Outlook database.

Wars, recessions and the COVID-19 pandemic pushed US debt sharply higher in recent years. However, recently the pace at which it has increased has accelerated. Gross debt reached its previous milestone of $39 trillion in March 2026, less than five months ago.

“The gross national debt has doubled in the last ten years; in less than twenty years, it has quadrupled,” said MacGuineas, adding that it took nearly 200 years for America’s gross debt to reach $1 trillion for the first time in 1981.

“At that time, President Reagan told the nation in a televised address, “If we as a nation needed a warning, let that be it.” Jumping to America’s 250th year, we are spending more than that just on interest payments on our debt,” she added.

The $40 trillion figure, known as gross federal debt, includes debt held by the public and debt held by the government itself, known as intragovernmental debt. It does not include debts carried by state and local governments or personal debt owed by individuals.

Debt held by the public is the portion owed to investors outside the federal government, including individuals, banks, pension and mutual funds, foreign investors, state and local governments and the Federal Reserve.

It is the largest component of the $40 trillion total, standing at more than $32 trillion, according to the Committee for a Responsible Federal Budget.

MacGuineas said in a statement: “The debt held by the public recently exceeding the size of our economy, the deficit-to-GDP ratio running twice as high as where it should be, and interest costs exceeding our national defence budget.”

It may be somewhat reassuring that most US government debt is held domestically.

Those investors include the Federal Reserve and government accounts, US banks, pension and mutual funds, insurance companies, state and local governments, households and other investors.

Together, they held about 76% of federal debt at the end of June 2026, according to the US Treasury.

Foreign and international investors were the next-largest group, holding $9.27 trillion, or 24.1%, in June 2026.

Japan held $1.12 trillion in Treasury securities in June 2026, accounting for 12% of foreign holdings. Countries outside the 20 largest foreign holders accounted for a combined 19.9%.

The government borrows because it spends more than it collects.

The federal budget deficit is projected to reach $1.9 trillion in 2026, equivalent to 5.8% of GDP. However, an August update shows that the deficit had already reached $1.8 trillion in the first 10 months of fiscal 2026, which runs from 1 October 2025 to 30 September 2026.

The Congressional Budget Office (CBO) expects federal expenditure, including defence, Social Security and net interest, to total about $7.4 trillion in the 2026 fiscal year, compared with revenues of $5.6 trillion.

Total spending includes $1.67 trillion for Social Security, about $1.9 trillion for major healthcare programmes, $918 billion for defence, $1.04 trillion for net interest and approximately $1.9 trillion for all other federal programmes.

The final category includes income support, veterans’ programmes, education, transport, law enforcement, government administration and other federal activities.

The CBO warned in February 2026 that the US fiscal trajectory is unsustainable, as persistent deficits push debt and interest costs higher.

This means that the government must raise taxes, cut spending or borrow more to meet its obligations. According to their forecast, gross federal debt will reach approximately $64 trillion by the end of 2036. Financing that debt is becoming increasingly expensive.

This week, government debt, inflation concerns and geopolitical risks helped push long-term Treasury yields to multi-year highs. The 30-year yield reached almost 5.34% on Tuesday, its highest level since 2007, before falling after the Treasury expanded its bond buybacks.

The bond sell-off has already pushed corporate borrowing costs higher, while mortgage rates could follow if yields remain elevated.

In the long run, high borrowing costs are adding to the future bill facing the US federal government.

According to official forecasts, interest on the debt is becoming one of Washington’s largest expenses.

The increased costs will coincide with relatively modest economic growth. The CBO expects real GDP growth to average 1.8% a year from 2027 to 2036, following stronger growth in 2026. The IMF’s latest forecast puts US growth at 2.3% in 2026.

While investors do not currently expect the US to default on its debt, the Treasury has expanded its repurchases of long-term bonds amid elevated yields. The move has drawn criticism from some market watchers.

JPMorgan strategists Jay Barry and Jason Hunter told MarketWatch this week that the move only addresses the symptoms, rather than the root cause of a budget deficit equivalent to about 6% of GDP. They also questioned the long-term impact of the repurchases. They warned that without “real fiscal consolidation” markets could “view this action as lacking credibility.”

“The US national debt reaching such eye-watering levels will concentrate minds on deficit risks in the world’s largest economy,” said Coatsworth from AJ Bell.

The Committee for a Responsible Federal Budget called for drastic measures, including committing to “No New Borrowing” and targeting a deficit of 3% of GDP, which it said already has bipartisan support.

MacGuineas said: “Whatever motivation our elected officials need to find to finally take action — whether the worries of their constituents back home, the alarm signalled by financial markets, competition from abroad, or the consequences of failing to act — they ought to find it soon. No one knows how many more of these milestones America can take.”