The Rising U.S. National Debt: What It Means for Growth and Taxes 2026

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The Rising U.S. National Debt

The U.S. national debt has reached a level that would have been difficult to imagine a generation ago.

But the size of the debt alone does not tell us whether it is economically dangerous.

The more important questions are how quickly federal debt is growing relative to the economy, how much the government must spend on interest, and whether rising debt will eventually limit economic growth, public spending, and policymakers’ ability to respond to future crises.

The Congressional Budget Office (CBO) projects that federal debt held by the public will equal about 101% of GDP in 2026 and rise to 120% by 2036 under its baseline assumptions. It also projects the federal deficit at $1.9 trillion in fiscal 2026, rising to $3.1 trillion by 2036. Net interest costs are projected to rise from about $1.0 trillion in 2026 to $2.1 trillion in 2036. (Congressional Budget Office)

These projections do not mean a U.S. debt crisis is inevitable.

They show something more important: the cost of past borrowing is becoming a larger part of the government’s future financial decisions.

And that can eventually affect economic growth, interest rates, government programs, and the taxes households and businesses pay.

The $40 Trillion Headline Needs Context

The U.S. national debt has now moved above the $40 trillion mark, but focusing only on that number can be misleading.

Economists usually compare government debt with the size of the economy.

That is why debt-to-GDP matters.

A government with $10 trillion of debt and a $30 trillion economy is in a very different position from one with $10 trillion of debt and a $5 trillion economy.

The United States has several advantages. Its economy is enormous, the dollar plays a central role in global finance, and Treasury securities are among the world’s most widely traded government assets.

So the useful question is not simply:

“Does the U.S. have too much debt?”

It is:

“Is federal debt growing faster than the economy’s ability to support the associated interest costs and future obligations?”

That question gets much closer to the real economic issue.

Gross Federal Debt vs. Debt Held by the Public

There are two important ways to think about U.S. federal debt.

Gross federal debt includes debt held by the public as well as Treasury securities held by federal government accounts.

Debt held by the public represents debt owed to investors, financial institutions, businesses, foreign governments, and other entities outside the federal government.

For analyzing how federal borrowing can affect the broader economy, debt held by the public is generally the more useful measure.

CBO’s February 2026 baseline projects debt held by the public at roughly 101% of GDP in 2026, 120% in 2036, and 175% in 2056. (Congressional Budget Office)

These are projections rather than guarantees. Actual outcomes could differ because of changes in tax policy, spending, economic growth, interest rates, immigration, inflation, and other factors.

But the direction of the baseline matters.

It shows debt continuing to grow faster than the economy over the long run.

Why Does the Debt Keep Rising?

The basic mechanism is straightforward.

The federal government runs a budget deficit when it spends more than it collects in revenues.

It then borrows to cover the difference.

CBO projects a $1.9 trillion federal deficit in fiscal 2026, equal to about 5.8% of GDP. By 2036, the deficit is projected to reach $3.1 trillion, or 6.7% of GDP. (Congressional Budget Office)

The more significant issue is that these large deficits are not projected only during recessions.

They remain large even as the economy operates under relatively normal conditions.

That makes the current fiscal challenge different from temporary borrowing during an economic downturn.

Borrowing during a recession can help support demand and prevent a deeper contraction. Persistent structural deficits are different because they continue accumulating even when the economy is not in crisis.

That is how debt can become a long-term feature of the budget rather than a temporary response to an emergency.

The Interest Cost Feedback Loop

One of the most important parts of the debt story is interest.

The federal government must pay interest on the debt it has accumulated.

As debt becomes larger, even moderate interest rates can produce enormous interest bills.

CBO projects federal net interest outlays at roughly $1.0 trillion in 2026, rising to $2.1 trillion in 2036, when they would equal about 4.6% of GDP. (Congressional Budget Office)

This creates a potentially powerful feedback loop:

Large deficits → more borrowing → larger debt → higher interest payments → larger deficits → more borrowing

That does not mean the United States is automatically heading toward a debt crisis.

It means the government gradually has less flexibility.

Every dollar devoted to interest is a dollar that cannot simultaneously be used for another federal priority unless the government raises more revenue or borrows more.

For a broader explanation of how borrowing costs move through households, businesses, financial markets, and economic growth, see Economic Reader’s How Interest Rates Affect the Economy.

How Rising Debt Can Affect Economic Growth

The biggest long-term concern is not simply the amount of debt.

It is what persistent borrowing can do to the economy.

One possible channel is crowding out.

Heavy government borrowing can increase demand for available financial capital. If private saving and other sources of capital do not increase enough to absorb that demand, interest rates can face upward pressure.

Higher borrowing costs can affect businesses and households.

A company considering a new factory may face a higher financing cost. A household may pay more for a mortgage. An investor may require a higher return before committing money to a risky project.

Over time, weaker private investment can reduce the economy’s productive capacity.

That matters because long-term economic growth depends heavily on productivity, labor supply, and investment.

The relationship between interest rates, borrowing, investment, and growth is explained in more detail in Economic Reader’s How Interest Rates Affect the Economy.

But Government Debt Is Not Automatically Bad

This distinction is essential.

Borrowing can be economically useful.

During a severe recession, for example, government spending financed through borrowing can support household incomes, businesses, and employment when private demand collapses.

Borrowing can also finance investments that increase future productive capacity.

Infrastructure, research, education, and other investments can potentially generate economic benefits that exceed their financing costs.

The real question is therefore not:

“Is government debt bad?”

It is:

“What is the borrowed money being used for, and does it generate enough economic value to justify the future cost?”

Borrowing that helps preserve productive capacity during a crisis is economically different from borrowing that simply allows structural spending to remain permanently above revenues.

That distinction is often missing from headline debates about the national debt.

The U.S. Has a Structural Fiscal Challenge

The longer-term problem becomes clearer when looking at spending and revenues together.

CBO projects federal outlays at about 23.3% of GDP in 2026, rising to 24.4% by 2036. Revenues, meanwhile, are projected at roughly 17.5% of GDP in 2026 and 17.8% in 2036 under current law. (Congressional Budget Office)

That leaves a persistent gap.

Major spending pressures include programs such as Social Security and Medicare, along with rapidly increasing interest costs.

This means the fiscal problem is not simply that the government occasionally spends too much.

The deeper problem is that projected spending remains substantially above projected revenues over many years.

Closing that gap would require some combination of:

Faster economic growth
Higher government revenues
Slower spending growth
Changes to major entitlement programs
Lower interest costs
Or a combination of these approaches

None is completely painless.

What Could Rising Debt Mean for Future Taxes?

This is where the debt issue becomes directly relevant to households and businesses.

Rising debt does not mean taxes must automatically increase next year.

Nor does today’s debt figure tell us exactly what future tax rates will be.

Tax policy is ultimately determined by lawmakers.

But persistent deficits increase the pressure to consider additional revenues if policymakers want to stabilize or reduce the debt burden.

Under CBO’s baseline, revenues remain around 17%–18% of GDP through 2036 while spending remains above 23% of GDP. (Congressional Budget Office)

If policymakers eventually decide that higher revenues are necessary, possible approaches could include changes to individual income taxes, payroll taxes, corporate taxes, deductions, credits, or consumption-related taxes.

Each option has different economic effects.

Higher taxes on labor can affect incentives to work. Taxes on investment can influence capital formation. Corporate taxes can affect business investment and decisions about where economic activity takes place.

That means raising revenue is not simply a matter of collecting more money.

The design of the tax system can influence future economic growth.

Higher Taxes Are Not the Only Possible Cost

It would also be too simplistic to say:

“Today’s debt will become tomorrow’s tax bill.”

The adjustment could occur through several channels.

Higher taxes: Future governments could increase revenues.

Lower spending: Policymakers could slow the growth of federal programs.

Higher borrowing costs: Persistent fiscal deficits could contribute to higher interest rates under some economic conditions, increasing financing costs for households and businesses.

Slower private investment: Greater government borrowing could reduce resources available for private investment.

Higher inflation: Inflation can reduce the real value of fixed-rate debt, but relying on inflation carries significant economic costs and can damage purchasing power and financial confidence.

For readers who want to understand that inflation mechanism in more detail, Economic Reader’s What Is Inflation? provides a broader explanation of inflation, purchasing power, and its economic effects.

Reduced fiscal flexibility: A larger share of the budget devoted to interest payments leaves less room to respond to future recessions or emergencies.

In reality, the eventual adjustment could involve several of these mechanisms simultaneously.

Why Interest Rates Matter So Much

Debt becomes more expensive when interest rates remain elevated.

The U.S. government continually refinances maturing Treasury securities. As older debt carrying lower interest rates matures, it is replaced with newly issued debt at prevailing market rates.

If those rates are higher, interest costs gradually rise.

That creates another feedback mechanism:

Higher debt → greater interest exposure → higher refinancing costs → larger interest payments → larger deficits

The effect is not immediate because the entire debt does not reprice at once.

But over time, higher rates can become increasingly important as more existing securities mature.

And Treasury yields matter beyond Washington.

They influence the broader cost of capital in the U.S. economy, affecting everything from corporate borrowing to mortgage rates and investment decisions.

For readers who want to understand the broader monetary-policy connection, Economic Reader’s What Is Monetary Policy? explains how central banks use interest rates and other tools to influence inflation, growth, and financial conditions.

Could Strong Economic Growth Solve the Problem?

Economic growth can make debt easier to manage.

If GDP grows rapidly, debt can become smaller relative to the economy even if the government continues borrowing in dollar terms.

That is why productivity growth is so important.

CBO projects real GDP growth to strengthen in 2026 before moderating over subsequent years, with average growth of about 1.8% annually from 2027 through 2036. (IDEAS/RePEc)

Faster productivity growth could improve the fiscal picture by increasing incomes, profits, and tax revenues without necessarily requiring higher tax rates.

Technological advances, including artificial intelligence, could potentially contribute to stronger productivity.

But relying on future technological breakthroughs to solve today’s fiscal problem would be risky.

Growth can help stabilize debt.

It is unlikely to substitute entirely for addressing persistent structural deficits.

Why the Dollar Gives the U.S. More Flexibility

The United States also has an advantage that many governments do not.

The dollar is central to international finance, and U.S. Treasury securities are widely used by investors and institutions around the world.

That gives the U.S. unusually deep access to capital markets.

It helps explain why a debt level that might create an immediate crisis for another country does not automatically produce the same result in the United States.

But this advantage should not be confused with unlimited borrowing capacity.

Investors still care about inflation, interest rates, economic growth, and the credibility of U.S. fiscal policy.

The U.S. can borrow on a very large scale.

That does not mean borrowing has no economic cost.

What Happens If Policymakers Wait?

The longer a structural deficit continues, the more debt accumulates.

That can reduce fiscal space the government’s ability to borrow during a future emergency without creating substantially greater financial pressure.

This matters because governments cannot predict when the next recession, financial crisis, natural disaster, or national-security emergency will occur.

A government with manageable debt has more room to respond.

A government already devoting a large share of its budget to interest payments has fewer easy options.

CBO’s long-term projections show why timing matters: under its baseline, debt held by the public rises to 175% of GDP by 2056. (Congressional Budget Office)

Those numbers are not destiny.

They are a measure of what could happen if current fiscal policies and economic assumptions broadly persist.

CBO also notes that the longer policymakers wait to make significant changes to taxes or spending, the larger the policy adjustments needed to put debt on a sustainable path could become. (Congressional Budget Office)

What the Debt Means for Investors, Businesses and Households

The national debt can eventually affect almost every part of the economy.

For businesses, higher financing costs can change investment decisions.

For investors, Treasury yields influence the relative attractiveness of bonds, stocks, and other assets.

For households, borrowing costs, taxes, and future government programs can all be affected by fiscal policy.

For the economy, persistent deficits can influence interest rates, private investment, inflation expectations, and long-term growth.

This is why the national debt is not simply a Washington budget issue.

It is also a question about the future cost of capital and the economy’s ability to grow.

The Real Question Is Not Whether the U.S. Can Borrow

The United States can continue borrowing because it has a huge economy, deep capital markets, a globally important currency, and strong institutions.

The harder question is how much borrowing can continue without increasingly consuming resources that could otherwise support private investment, public priorities, and future growth.

The relationship between four variables matters most:

Economic growth + interest rates + government revenues + government spending

If the economy grows faster than debt and interest costs, the burden can become easier to manage.

If debt and interest costs grow faster than the economy, fiscal pressure becomes harder to contain.

That is why the debt problem is ultimately also a growth problem.

What Higher Debt Could Mean for Future Generations

The future burden may not arrive as one dramatic tax increase.

It could appear through a combination of:

Higher taxes
Slower growth in government programs
Higher interest costs
Higher borrowing costs
Less public investment
Reduced fiscal flexibility
Slower economic growth

Exactly how the burden is distributed will depend on future policy choices.

That is why it is misleading to describe today’s debt simply as “tomorrow’s tax bill.”

Government debt creates future obligations, but the economic burden can be distributed through taxes, spending decisions, interest payments, and changes in economic growth.

Policy determines who ultimately carries that burden.

The U.S. Debt Problem Is a Long Term Choice

The U.S. national debt is large, but the most important issue is not whether the country suddenly runs out of money.

The more serious question is whether persistent deficits gradually reduce the government’s financial flexibility and the economy’s growth potential.

CBO’s current baseline shows debt held by the public rising from roughly 101% of GDP in 2026 to 120% in 2036 and 175% by 2056 if current laws and other assumptions broadly remain in place. (Congressional Budget Office)

Those projections are not a prediction that the U.S. will experience a debt crisis.

They are a warning about the direction of the fiscal path.

The central challenge is therefore not making the national debt disappear.

It is creating a fiscal structure in which economic growth remains strong enough, revenues are sufficient enough, and spending commitments are manageable enough that debt does not continually grow faster than the economy’s ability to support it.

For households and businesses, the consequences will not necessarily arrive through a single policy.

They are more likely to emerge through the interaction of taxes, interest rates, public spending, investment, and economic growth.

The longer those pressures remain unresolved, the fewer easy choices future policymakers are likely to have.