US & World Economies US Economy Fiscal Policy Will the U.S. Ever Get Out of Debt? Ways to Reduce the National Debt By Kimberly Amadeo Updated on June 19, 2024 Reviewed by Robert C. Kelly Reviewed by Robert C. Kelly Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital. learn about our financial review board Fact checked by Emily Ernsberger In This Article View All In This Article What Stops the U.S. From Paying Its Debt? U.S. Debt Milestones Four Ways the U.S. Could Pay Off Its Debt Frequently Asked Questions (FAQs) Photo: Chloe Giroux / The Balance Congress has made many attempts to lower the national debt, but it hasn't been able to reduce the growth of what the nation owes. The U.S. debt is the outstanding obligation owed by the federal government. It exceeded $34 trillion for the first time in December 2023, and it has increased by at least $1 trillion each year since 2016. Key Takeaways Federal debt is at its highest point in American history.Raising taxes and cutting spending are two of the most popular solutions for reducing debt, but politicians may be hesitant to do both.Diverting spending from the military to other sectors may boost job growth, which could spur consumer spending and help the economy. What's Stopping the U.S. From Paying Down Its Debt? Most creditors don’t worry about a nation's debt, also known as sovereign debt, until it's more than 77% of gross domestic product (GDP). That's the point at which added debt cuts into annual economic growth, according to the World Bank. At the end of the first quarter of 2024, the U.S. debt-to-GDP ratio was 122%. That's much higher than the tipping point and is a concern for many. Over $27 trillion of that national debt is public debt, which is what the government owes to investors and taxpayers. Congress places a limit on public debt. It increased the limit by $2.5 trillion in December 2021, to nearly $31.4 million. Though it has since breached that limit, the government has not again raised the debt limit, choosing instead to suspend it through at least December 31, 2024. Why isn't the U.S. eliminating its debt and paying people back? There are a few reasons. Economic Growth Has Outpaced Its Debt U.S. economic growth has historically outpaced its debt. The U.S. debt was $258.68 billion in August 1945, but the economy outgrew that in a few years. GDP more than doubled by 1960. Congress believes that today's debt will be dwarfed by tomorrow's economic growth. Congress Has a Lot to Lose Members of Congress have a lot to lose by cutting spending. They could lose their next election if they cut Social Security or Medicare benefits. Raising Taxes Isn't Popular Raising taxes can be politically unpopular. Experts believe that President George H.W. Bush lost reelection because he raised taxes after promising he wouldn't at the 1988 Republican convention. He raised taxes in 1990 to reduce the deficit, and voters remembered. U.S. Debt Milestones The national debt has grown so large over time that people notice when it hits a new high. Here are just a few milestones over the years. New Debt Milestone Date or Year $25 billion 1934 $40 billion 1939 $100 billion 1943 $250 billion 1945 $500 billion 1975 $1 trillion 1982 $2 trillion 1986 $3 trillion 1990 $4 trillion 1992 $5 trillion 1996 $6 trillion 2002 $7 trillion 2004 $8 trillion 2005 $9 trillion 2007 $10 trillion 2008 $11 trillion March 2009 $12 trillion November 2009 $13 trillion June 2010 $14 trillion December 2010 $15 trillion 2011 $16 trillion 2012 $17 trillion 2013 $18 trillion 2014 $19 trillion 2016 $20 trillion 2017 $21 trillion 2018 $22 trillion February 2019 $23 trillion October 2019 $24 trillion April 2020 $25 trillion May 2020 $26 trillion June 2020 $27 trillion October 2020 $28 trillion March 2021 $29 trillion December 2021 $30 trillion January 2022 $31 trillion October 2022 $32 trillion June 2023 $33 trillion September 2023 $34 trillion December 2023 Four Ways the U.S. Could Pay Off Its Debt There are two main themes in most discussions about paying off the national debt: cutting spending and raising taxes. Other options might not enter most conversations but can aid in debt reduction, too. Cut Spending The 2010 bipartisan Simpson-Bowles report is a good example of how the government could cut spending to reduce debt. The report proposed balancing the budget through a mix of spending cuts and tax reform. Congress didn't adopt the complete plan, but the government did implement parts of it with some success. Note A 2015 report from the Committee for a Responsible Federal Budget indicated that although a piecemeal approach reduced debt, full-fledged adoption of the Simpson-Bowles plan may have produced a significantly lower debt-to-GDP ratio. Raise Taxes Raising taxes can generate revenue that the government can use to pay down debt as well as invest in programs that support the economy. But it can cut into tax revenue and hurt the economy if the government raises taxes too high. Finding the correct balance is expressed by a concept known as the Laffer Curve. Grow the Economy Faster Increasing the GDP has a twofold benefit: It generates extra revenue to pay down debt, and it reduces the debt-to-GDP ratio if GDP growth outpaces debt growth. Driving economic growth is one way to reduce the national debt, but Congress tends to disagree on how to create that growth. Most Democrats push increased spending, while most Republicans champion lower taxes. However, unlimited growth is an unrealistic goal, so growth alone can't solve the federal debt. Shift Spending Congress could shift spending from defense to job-creation areas like infrastructure and education. Almost 15% of government spending goes to the military. However, past studies indicate that money spent on the military is less effective in creating jobs than money spent in other areas. According to a report from the Political Economy Research Institute at the University of Massachusetts, Amherst, $1 billion in education and mass transit spending could produce more than twice the jobs created by military spending. Job creation can help boost the GDP, which can help lower the nation's debt-to-GDP ratio in many cases. Frequently Asked Questions (FAQs) How much debt does the United States have? The national debt grew to a record high of more than $34.7 trillion in June 2024. Whom is the United States in debt to? The U.S. isn't in debt to any one person or government. Many people, countries, and institutions hold U.S. federal debt in the form of securities like Treasury bonds. The top owners of U.S. debt include individual U.S. investors, the Federal Reserve, other government accounts, and nations such as Japan, China, and the United Kingdom. What is the U.S. debt limit? The debt ceiling is the limit on what the U.S. government can borrow to pay bills that have come due. Congress puts this limit in place each year. The debt limit isn't about future debt. Instead, it's about paying for spending that Congress authorized in previous years. If Congress does not raise the federal debt as needed, then the U.S. government cannot pay its bills and will default. Updated by Hilarey Gould Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Fiscal Data Treasury.gov. "Debt to the Penny." World Bank. "Finding The Tipping Point -- When Sovereign Debt Turns Bad." Federal Reserve Bank of St. Louis. "Federal Debt: Total Public Debt as Percent of Gross Domestic Product." Congress.gov. “S.J.Res.33 – A joint resolution relating to increasing the debt limit.” Tax Policy Center. "TaxVox: Campaigns, Proposals, and Reforms." U.S. Congress. "H.R.5835 - Omnibus Budget Reconciliation Act of 1990." Committee for a Responsible Federal Budget. "Five Years Since Simpson-Bowles: How Much of It Have We Enacted?" Committee for a Responsible Federal Budget. "Could Faster Growth Solve Our Debt Woes?" Institute for Policy Studies. "The U.S. Employment Effects of Military and Domestic Spending Priorities," Page 7. Congressional Research Service. "Foreign Holdings of Federal Debt." Bureau of the Fiscal Service. "Treasury Bulletin," Click: "Ownership of Federal Securities." The White House. "The Debt Ceiling: An Explainer." Part Of The National Debt The US National Debt and How It Affects You How Did the U.S. National Debt Get So Big? US Debt Ceiling and Its Current Status US National Debt Clock: How Its Warning Affects You Who Owns the US National Debt? What Is the Public Debt, and When Is It Too High? U.S. Debt to China: How Much Is It, and Why? 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