The U.S. government learned last week that it may have reached an unfortunate milestone: The size of its debt surpassed the nation\u2019s total economic output.<\/p>\n
It was a striking imbalance, according to early estimates, one that the country has experienced only in rare circumstances \u2014 briefly during the pandemic, and in the aftermath of World War II. But the development barely seemed to register in the nation\u2019s capital, where few policymakers bothered to acknowledge the latest warning sign about the government\u2019s poor fiscal health.<\/p>\n
The root of the problem is well-documented and widely known. U.S. debt has soared in recent years because of a mismatch<\/a> between federal spending and tax revenue, one complicated by a rapidly aging population, which has driven up costs across government.<\/p>\n For economists, the fear is that these conditions are inching the United States toward a fiscal crisis, one in which its debt is so great that the country can\u2019t easily afford to pay the rising interest on it. But their warnings have long gone unheeded in Washington, calcifying the strains on the government\u2019s balance sheet in ways that President Trump\u2019s agenda is expected to exacerbate.<\/p>\n Despite winning a congressional majority, Republicans have cut little in spending over the past year. With the few savings they did achieve, they put that money toward offsetting a fraction of the cost of Mr. Trump\u2019s tax cuts, which are still expected to add more than $4 trillion to the debt<\/a> in the coming years.<\/p>\n Those fiscal risks aren\u2019t yet fully realized in the total federal debt held by the public, which topped about $31.26 trillion in March, federal records<\/a> show. By comparison, the nation\u2019s nominal gross domestic product, a measure of its output using current dollars, reached $31.21 trillion in the 12-month period ending in March, according to data released last Thursday<\/a> and analyzed by the Committee for a Responsible Federal Budget, which supports deficit reduction.<\/p>\n As a result, the ratio of debt to G.D.P. \u2014 a widely regarded metric for assessing the government\u2019s fiscal health \u2014 slightly exceeded 100 percent in the committee\u2019s calculations. That last occurred for a short period in 2020, as the pandemic clobbered the economy and government shelled out trillions in emergency relief, the group found.<\/p>\n Marc Goldwein, its senior vice president, said the symbolic milestone helped to illustrate the fiscal risk facing the United States. If its debt continues to grow faster than the economy, he said, it will only become more expensive for the government to borrow money, as investors demand higher yields on bonds to finance that debt.<\/p>\n \u201cWhen that happens, at some point, you\u2019re in this debt spiral,\u201d Mr. Goldwein said. \u201cThe only way to stop it is through some kind of big shock to the system.\u201d<\/p>\n Yet the reaction on Capitol Hill appeared muted, despite years of hand-wringing among Republicans, in particular, about the need for fiscal restraint.<\/p>\n Representative Jodey Arrington, Republican of Texas and chairman of the House Budget Committee, described the new level of the nation\u2019s debt as a \u201cflashing red light\u201d for the economy, but he acknowledged that both parties were responsible for \u201csleepwalking off of a cliff.\u201d<\/p>\n \u201cI think, unfortunately, too many people are used to these flashing red indicators that we have significant structural problems with America\u2019s balance sheet,\u201d he said.<\/p>\n Nor did the Trump administration have anything to say directly about the level of debt surpassing economic growth. Kush Desai, a White House spokesman, claimed instead that the government\u2019s fiscal standing had actually improved under Mr. Trump, as he pointed to work to \u201cslash the pervasive waste, fraud and abuse in federal spending.\u201d<\/p>\n To be sure, economists and policymakers do not believe the U.S. government is staring down an imminent calamity. For one thing, it is possible that the nation\u2019s fiscal crunch eases some, at least on paper, if economic growth picks up and spending slows, as the Trump administration anticipates.<\/p>\n In the first three months of the year, the U.S. economy grew at an annual rate of about 2 percent<\/a>, according to federal data released last week. Mr. Trump\u2019s advisers have long proclaimed that growth would accelerate, citing the president\u2019s agenda and other trends, including the rise of artificial intelligence, though the war with Iran has dampened some experts\u2019 outlook.<\/p>\n The federal budget deficit \u2014 the annual gap between what the government spends and what it takes in through taxes and other revenue \u2014 fell in the first six months<\/a> of the current fiscal year, according to congressional figures. But the Trump administration itself has recently estimated<\/a> that the annual imbalance will still reach around $2 trillion by the end of fiscal 2026, which could mark an increase from a year earlier.<\/p>\n Adding to the challenges, the U.S. government is just beginning to refund billions of dollars<\/a> collected from Mr. Trump\u2019s once-vaunted, and now illegal, global tariffs, with the first checks expected to reach businesses next week. That could further rattle the nation\u2019s finances, just as the Trump administration simultaneously confronts the potentially towering cost<\/a> of the Iran war.<\/p>\n All of the data could still be revised in the coming months. But budget experts nonetheless say it raises concern about the rate of growth in U.S. debt \u2014 and the signals that it sends to the global economy. Well before last week, the three major credit ratings agencies had each downgraded<\/a> the United States, pointing to the country\u2019s mounting and long-unresolved fiscal constraints as reason to doubt its financial outlook.<\/p>\n The poor marks in recent years have also spurred concerns that unchecked debt could lead investors to demand higher payments on government bonds, making borrowing more expensive for Washington. Yields on those bonds have jumped repeatedly under Mr. Trump, most recently because of the war with Iran, sending the 30-year bond to about 5 percent at one point this week before later settling.<\/p>\n Such costs tend to ripple through the economy, so high yields on government bonds can also make it more expensive for consumers and businesses to borrow money, said Joe Seydl, a senior markets economist for J.P. Morgan Private Bank.<\/p>\n \u201cWe\u2019re already in territory where this is putting upward pressure on interest rates and it is having an economic effect,\u201d he said of the current debt, though he cautioned that it certainly had not precipitated \u201cany sort of fiscal crisis.\u201d<\/p>\n In its annual report, the nonpartisan Congressional Budget Office projected in February that the government\u2019s debt would outpace economic growth this year \u2014 and worsen in the years to follow<\/a>. Pointing to a changing, aging work force, the scorekeeper estimated<\/a> that U.S. debt held by the public would soar to 120 percent of gross domestic product by the end of 2036.<\/p>\n If that occurred, the budget office warned, the \u201crisk of a fiscal crisis\u201d would increase, eroding trust in the dollar and constraining the ability of lawmakers to \u201crespond to unforeseen events or for other purposes, such as to promote economic activity or strengthen national defense.\u201d<\/p>\n Other countries, including Japan, Greece and Italy, report debt levels that outpace their annual output, according to data compiled by the International Monetary Fund<\/a>. But those economies are not as large as that of the United States, nor do their currencies occupy the same, pivotal role as the dollar in the global financial order.<\/p>\n Still, the warnings from the C.B.O. earlier this year produced little more than political recriminations on Capitol Hill, where Democrats and Republicans have long avoided addressing the country\u2019s greatest fiscal strains, including the future finances of Medicare and Social Security.<\/p>\n If anything, the two parties found rare unity last year in rejecting many of Mr. Trump\u2019s attempts to cut spending<\/a>, as they looked to protect popular education, health, labor and social programs that serve millions of families. That only emboldened the White House to try to slash those programs on its own through potentially illegal means.<\/p>\n In the meantime, Republicans under Mr. Trump added to the debt, chiefly through enacting their package of tax cuts last year. William McBride, the chief economist at the Tax Foundation, which generally supports lower taxes, said that the cuts may have \u201csped up the inevitable,\u201d perhaps bringing \u201cthose really high and dangerous levels of debt closer in time, maybe a few years.\u201d<\/p>\n Republicans, including Mr. Arrington, have long argued that some of the tax cuts essentially pay for themselves by stoking economic growth, generating more revenue. But another, earlier analysis from the Congressional Budget Office<\/a> projected the bill would boost G.D.P. while still increasing deficits, partly by making borrowing more expensive.<\/p>\n