How much the debt is in relation to the GDP, along with the major events that have influenced it? On January 31, 2022, the United States' national debt surpassed $30 trillion for the first time. It has increased over time due to economic downturns, increased expenditure on defense, and other activities that have contributed to the debt. The United States' national debt has increased to an alarming level that it now exceeds the gross domestic product (GDP), the standard measure of its annual economic activity. With time, recessions have contributed to an increase in the national debt since they have led to a decrease in tax revenue and have required Congress to spend more money to boost the economy. In addition, spending on benefits such as Medicare and the military has significantly contributed to the problem. In the years 2020 and 2021, the United States will incur additional debt due to expenditures made to mitigate the impact of the COVID-19 pandemic. Investors may get concerned that the United States will default on its debt when the size of the national debt reaches the "debt ceiling," which is the limit that Congress has established. If this happens, the government will have to either increase the limit on the amount of debt it can carry or find other ways to minimize the amount of debt it carries, such as raising taxes, cutting expenditures, and doing other things. Comparing the national debt to each year's GDP and other key events that have had an impact on the debt is one perspective from which to examine it. In the following section, we will examine the annual amount of the national debt in the United States and the factors that led to its growth over time.
Key takeaways
- In January of 2022, the national debt of the United States of America topped $30 trillion.
- The ratio of debt to the gross domestic product provides information about whether or not the United States can pay off all of its debt.
- Recessions increased spending on defense, and tax cuts are all factors that have contributed to the rise in the national debt-to-GDP ratio to historic levels.
- It would have enormous repercussions for the entire world's economy if the United States defaulted on its debts.
A year-by-year breakdown of the national debt and how to read it
It is crucial to put a country's national debt into perspective while analyzing it. It is common practice to employ expansionary fiscal policy during a recession, which can take the form of increased government expenditure and reduced tax rates. If it stimulates growth sufficiently, it may be possible to lower the debt. A flourishing economy results in increased tax revenues, which contribute to reducing the national debt. The theory of supply-side economics suggests the growth from tax reduction is enough to recoup the tax revenue lost if the tax rate is above 50 percent of income. Tax cuts make the national debt worse without increasing economic growth by enough to make up for the lost money when tax rates are lowered. The national debt may rise due to enormous catastrophes such as wars and pandemics. The United States raises the amount of money it spends on its military in a national crisis. For instance, after the events on September 11, 2001, the United States increased its expenditure on the military to initiate the War on Terror, which led to an increase in the national debt. These measures are estimated to cost $6.4 trillion between fiscal years 2001 and 2020, including increases to the Department of Defense and the Veterans Administration budgets. It is essential to evaluate the level of the national debt on an annual basis concerning the size of the economy as determined by the gross domestic product. This will give you the debt-to-gross domestic product ratio (GDP). This ratio is essential because investors worry about a default. When the debt-to-GDP ratio is more significant than 77 percent — the point investors get concerned about a default — that ratio is considered the tipping point. According to research conducted by the World Bank, a significant slowdown in economic growth occurred in the ratio of debt to GDP that remained higher than 77 percent for a lengthy period. The nation's economic growth will slow by 0.017 percentage points for every additional percentage point. The debt level remains above this level. You may also use the ratio of the national debt to the gross domestic product (GDP) to compare the national debt to that of other countries. It indicates how likely it is that the nation will be able to pay back its debt.Comparison of yearly debt to nominal GDP and events
Because the conclusion of the fiscal year coincides with the end of the fourth quarter of each year (unless otherwise specified), the debt and GDP are reported as of the end of the fourth quarter. This is the most reliable and precise method for determining how much each fiscal year's spending contributes to the debt and how that number compares to economic growth. The comparison of the national debt to GDP and significant events since 1929 may be found in the table below. Since quarterly GDP numbers are not available, the total amount of debt is published after the second quarter for 1929 through 1946. The debt and GDP figures for the years 1947–1976 are shown after the second quarter because, during those years, the fiscal year ended on June 30. On the other hand, GDP is provided annually. The total amount of the national debt was approximately $29.6 trillion when the fourth quarter of 2021 came to a close. The debt ratio to the gross domestic product was approximately 124 percent based on the GDP figure for the fourth quarter, which was $23.9 trillion.| End of Fiscal Year | Debt (rounded in billions) | Ratio: Debt-to-GDP | Major Events |
| 1929 | $17 | 16% | Market crash |
| 1930 | $16 | 17% | Smoot-Hawley reduced trade |
| 1931 | $17 | 22% | Dust Bowl drought raged |
| 1932 | $20 | 34% | Hoover raised taxes |
| 1933 | $23 | 40% | New Deal increased GDP and debt |
| 1934 | $27 | 40% | |
| 1935 | $29 | 39% | Social Security |
| 1936 | $34 | 40% | Tax hikes renewed depression |
| 1937 | $36 | 39% | Third New Deal |
| 1938 | $37 | 42% | Dust Bowl ended |
| 1939 | $40 | 51% | Depression ended |
| 1940 | $43 | 49% | FDR increased spending and raised taxes |
| 1941 | $49 | 44% | U.S. entered WWII |
| 1942 | $72 | 48% | Defense tripled |
| 1943 | $137 | 70% | |
| 1944 | $201 | 91% | Bretton Woods |
| 1945 | $259 | 114% | WWII ended |
| 1946 | $269 | 119% | Truman's 1st term budgets and recession |
| 1947 | $258 | 103% | Cold War |
| 1948 | $252 | 92% | Recession |
| 1949 | $253 | 93% | Recession |
| 1950 | $257 | 86% | Korean War boosted growth and debt |
| 1951 | $255 | 74% | |
| 1952 | $259 | 71% | |
| 1953 | $266 | 68% | Recession when the war ended |
| 1954 | $271 | 69% | Eisenhower's budgets and the Recession |
| 1955 | $274 | 64% | |
| 1956 | $273 | 61% | |
| 1957 | $271 | 57% | Recession |
| 1958 | $276 | 58% | Eisenhower's 2nd term and recession |
| 1959 | $285 | 55% | Fed raised rates |
| 1960 | $286 | 54% | Recession |
| 1961 | $289 | 52% | Bay of Pigs |
| 1962 | $298 | 50% | JFK budgets and the Cuban missile crisis |
| 1963 | $306 | 48% | The U.S. aids Vietnam, and JFK killed |
| 1964 | $312 | 46% | LBJ's budgets and the war on poverty |
| 1965 | $317 | 43% | The U.S. entered Vietnam War |
| 1966 | $320 | 40% | |
| 1967 | $326 | 40% | |
| 1968 | $348 | 39% | |
| 1969 | $354 | 36% | Nixon took office |
| 1970 | $371 | 35% | Recession |
| 1971 | $398 | 35% | Wage-price controls |
| 1972 | $427 | 34% | Stagflation |
| 1973 | $458 | 33% | Nixon ended the gold standard and the OPEC oil embargo |
| 1974 | $475 | 31% | Watergate and budget process created |
| 1975 | $533 | 32% | Vietnam War ended |
| 1976 | $620 | 33% | Stagflation |
| 1977 | $699 | 34% | Stagflation |
| 1978 | $772 | 33% | Carter budgets and recession |
| 1979 | $827 | 32% | |
| 1980 | $908 | 32% | Volcker raised the fed rate to 20% |
| 1981 | $998 | 31% | Reagan tax cut |
| 1982 | $1,142 | 34% | Reagan increased spending |
| 1983 | $1,377 | 37% | Jobless rate 10.8% |
| 1984 | $1,572 | 38% | Increased defense spending |
| 1985 | $1,823 | 41% | |
| 1986 | $2,125 | 46% | Reagan lowered taxes |
| 1987 | $2,350 | 48% | Market crash |
| 1988 | $2,602 | 50% | Fed raised rates |
| 1989 | $2,857 | 51% | S&L Crisis |
| 1990 | $3,233 | 54% | First Iraq War |
| 1991 | $3,665 | 58% | Recession |
| 1992 | $4,065 | 61% | |
| 1993 | $4,411 | 63% | Omnibus Budget Act |
| 1994 | $4,693 | 64% | Clinton budgets |
| 1995 | $4,974 | 64% | |
| 1996 | $5,225 | 64% | Welfare reform |
| 1997 | $5,413 | 63% | |
| 1998 | $5,526 | 60% | LTCM crisis and recession |
| 1999 | $5,656 | 58% | Glass-Steagall repealed |
| 2000 | $5,674 | 55% | Budget surplus |
| 2001 | $5,807 | 55% | 9/11 attacks and EGTRRA |
| 2002 | $6,228 | 57% | War on Terror |
| 2003 | $6,783 | 59% | JGTRRA and Iraq War |
| 2004 | $7,379 | 60% | Iraq War |
| 2005 | $7,933 | 61% | Bankruptcy Act and Hurricane Katrina. |
| 2006 | $8,507 | 61% | Bernanke chaired Fed |
| 2007 | $9,008 | 62% | Bank crisis |
| 2008 | $10,025 | 68% | Bank bailout and QE |
| 2009 | $11,910 | 82% | Bailout cost $250B ARRA added $242B |
| 2010 | $13,562 | 90% | ARRA added $400B, payroll tax holiday ended, Obama Tax cuts, ACA, Simpson-Bowles |
| 2011 | $14,790 | 95% | Debt crisis, recession, and tax cuts reduced revenue |
| 2012 | $16,066 | 99% | Fiscal cliff |
| 2013 | $16,738 | 99% | The sequester, government shutdown |
| 2014 | $17,824 | 101% | QE ended, debt ceiling crisis |
| 2015 | $18,151 | 100% | Oil prices fell |
| 2016 | $19,573 | 105% | Brexit |
| 2017 | $20,245 | 104% | Congress raised the debt ceiling |
| 2018 | $21,516 | 105% | Trump tax cuts |
| 2019 | $22,719 | 107% | Trade wars |
| 2020 | $27,748 | 129% | COVID-19 and 2020 recession |
| 2021 | $29,617 | 124% | COVID-19 and American Rescue Plan Act |
Frequently Asked Questions (FAQs)
Who is responsible for paying the national debt?
The majority of the nation's debt is held in the hands of the general populace. This includes individuals, corporations, banks affiliated with the Federal Reserve System, state and local governments, and governments from other countries. The amount of the national debt held by other departments and agencies of the federal government is referred to as "intragovernmental debt."How is the total amount of the national debt determined?
The total of all outstanding liabilities owing by the federal government to members of the public or other agencies within the federal government is referred to as the national debt. In addition to bills, notes, and bonds issued by the Treasury, this category includes Treasury inflation-protected securities (TIPS), government account series, and other types of investments.When exactly did the nation's debt begin to accumulate?
Since its formation in 1776, the United States of America has been burdened by a national debt. During the American Revolution, the nation took out loans to pay for the military effort.