The national debt has now crossed a threshold that once seemed almost unimaginable: $40 trillion.
This gross figure includes approximately $7 trillion in intragovernmental debt, money the federal government technically owes to its own trust funds such as Social Security and Medicare. That internal ledger is likely to face massive pressures as major entitlement trust funds barrel toward depletion in 2032 and 2033, which could force abrupt structural adjustments.
Even so, economists typically look past this internal tally and focus heavily on debt held by the public (cash borrowed from outside investors and foreign governments), which now sits around 100% of GDP.
Last week, the Treasury Department reported that total federal debt had reached $40.047 trillion. Debt held by the public stood at roughly $32.3 trillion, approximately equal to the size of the U.S. economy. At the same time, the federal deficit is running at roughly 6% of GDP, and through the first 10 months of fiscal year 2026, the government has already accumulated a $1.8 trillion deficit.
Yet the day after the $40 trillion milestone, Treasury Secretary Scott Bessent offered a remarkably confident response:
“There’s nothing magic about the $40 trillion number,” Bessent said. “And we can grow our way out of that.”
There’s no magic bullet, either. Stronger economic growth is certainly desirable and would help our dire fiscal situation. But economic growth is not going to solve the underlying problem of out-of-control spending.
Importantly, the extent to which higher economic growth can help largely depends on what “grow our way out” actually means.
Growth will not make the debt disappear
First, we have to make a distinction between growing our way out of the debt in nominal terms (the total dollar amount owed) and reducing the debt-to-GDP ratio (debt as a share of the economy).
If the federal government continues to run a large deficit (a safe assumption based on history and projections), then the nominal debt will continue to rise. A $2 trillion deficit adds another $2 trillion to the debt regardless of whether real (inflation-adjusted) economic growth comes in at 2% or 6%.
To actually reduce the $40 trillion in dollar terms, policymakers would have to turn our persistent 6% deficit into a budget surplus.
Perhaps what Bessent meant was that we could “grow out of it” relative to the economy. While this goal is more plausible, it requires much more growth than the United States has historically delivered. Figure 1 below shows real growth rates since 1990, with a historical average annual growth rate of 2.5%.
Three scenarios illustrate the challenge. The current public debt ratio is around 100% of GDP, while budget deficits will consistently run at around 6% for the coming decade.
1. Growth reaches 3.9%: Under these conditions, real GDP must grow at about 3.9% every year, assuming 2% inflation, just to stabilize the debt at 100%. A growth rate of 3.9% would not reduce the debt ratio. This level of growth would merely stop it from going any higher. Excluding the COVID recovery year of 2021, this level of growth has only been achieved in five out of 35 years, and all in the mid-to-late 1990s boom.
2. Growth matches the historical average: If we instead grow at historical average rates of about 2.5%, and inflation runs at around 2.5%, then a persistent 6% deficit would push the debt ratio to roughly 107% over 10 years.
3. Growth reaches 4%: If by some miracle we achieved 4% real growth and maintained this growth rate every year for an entire decade, the debt ratio would fall from 100 to 96% of GDP. Unfortunately, the historical record gives little reason to assume that this is remotely likely.
Of course, this assumes no major economic crises, which have historically added about 20 percentage points to the debt ratio within just a few short years.
These projections may also be optimistic because higher debt reduces economic growth potential.
The arithmetic is even worse once interest is included
The arithmetic so far has been rose-tinted and generous because it treats the budget deficit as constant at roughly 6% of GDP.
That approach ignores the fact that the federal government now spends about $1 trillion a year on servicing the debt, and interest rates remain elevated, with the yield on 30-year Treasury bonds now well above 5%.
As the growth of public debt continues unabated, interest payments get even larger, which increases the size of budget deficits, which again increases the pace of growth in debt. This creates a dangerous feedback loop, whereby the prospect of growing our way out diminishes as the debt gets larger.
Growth is part of the solution, not the whole solution
Faster economic growth is an ambition that policymakers should aspire to achieve. The country desperately needs policies that make it easier to invest, innovate, and increase productivity. But this is an argument for more growth and fiscal prudence, not growth instead of fiscal prudence.
Real and persistent annual growth of 3% would certainly help in stabilizing the growing debt ratio, but to get the debt in a downward trajectory policymakers would also need to ensure that mandatory spending — programs funded automatically under existing law — does not grow faster than 3% per year.
Spending restraint is not the only option.
Another debt reduction option at policymakers’ discretion involves eliminating tax expenditures that serve as pure tax breaks for special interests. We compiled a list of 175 deductions, credits, exclusions, and exemptions in the federal tax code.
Policymakers could easily find between $300 billion and $400 billion in additional annual revenues by reforming and eliminating some of the tax code’s most economically distortive provisions — those that encourage inefficient economic decisions or favor special interests.. This would significantly improve the nation’s fiscal trajectory, while also working toward a tax system that is simpler, less distortive, and more conducive to economic prosperity.
Another fiscal benefit of simplifying the tax code is that it would shift the needle toward sustained 3% growth. As I previously argued in my research, moving toward a simplified flat tax system could add 0.4 to 0.8 additional percentage points of annual growth over 10–20 years.
Ultimately, the United States does not have a $40 trillion growth problem. It has a fiscal imbalance. Growth can make that imbalance easier to manage, but it cannot make arithmetic disappear.
The sooner policymakers recognize that distinction, the better.
The math and the reasoning are sound and really beyond debate What is needed now is attention to the political questions. this should start with, how do we get better political leadership?