On July 4, President Donald Trump signed a significant domestic policy bill that introduced a new wave of tax cuts, projected to add between $3 trillion and $4 trillion to the national debt.
Economists warn that the rapid growth of the national debt has potential far-reaching impacts on the economy, affecting individuals directly.
Brett Loper, executive vice president of policy at the Peter G. Peterson Foundation, likened this situation to a boa constrictor tightening its grip on its prey.
“The squeeze comes in the form of slower growth, less job creation, and higher borrowing costs for consumers making significant purchases like homes or for businesses investing in equipment,” Loper said, emphasizing the widespread consequences that the national debt can create.
The total national debt has experienced a staggering increase, nearly tripling from $12.26 trillion in 2004 to an estimated $35.46 trillion in 2024, according to U.S. Treasury data.
This ascent can be traced back to a multi-decade trend that gained momentum in the 1980s, only to be significantly heightened by the financial crisis and Great Recession in 2008, marking a shift from a period of relative stability post-World War II.
Simultaneously, the debt-to-GDP ratio, which illustrates the scale of national debt relative to the country’s gross domestic product, has consistently risen, surpassing 100% for the first time since the post-World War II era in 2013, reaching as high as 123% last year.
Adding to these concerns is the increasing portion of federal spending allocated to interest payments on the debt, which has grown from 8% of overall expenditures in fiscal year 2019 to 13% in fiscal year 2024.
In 2024 alone, expenditures for net interest were anticipated to be $881.7 billion, making it the third-largest category of federal spending following Social Security and federal healthcare programs.
Understanding the drivers behind the national debt is crucial.
At its core, the U.S. national debt represents the difference between federal government revenue—through taxes and other income—and total budgeted federal spending, compounded by deficits accumulated in prior years.
Economist Steven Kyle of Cornell University attributes a part of the recent debt upsurge to pandemic-related spending, which introduced exceptional financial measures on top of ongoing expenses, particularly for entitlement programs like Medicare and Medicaid, defense budgeting, and interest payments.
Persistent pressures to sustain Medicare and Social Security, especially amidst an aging population and escalating healthcare costs, have also played a role in swelling the national debt.
Despite extensive discourse surrounding the debt-to-GDP ratio, there is no universally accepted benchmark indicating economic instability.
Notably, Japan’s ratio reached nearly 250% in 2023, yet it does not face categorization as an insecure economy.
Kyle remarked, “There is no magic level for that number that means a crisis,” highlighting that the current concern revolves around a lack of confidence in the ability of U.S. economic managers to effectively address the escalating debt.
To combat rampant government spending, augmenting revenue through increased taxes could be a solution, but given the current political climate, such measures seem unlikely.
“On the revenue side, one where you are not allowed to utter the word tax, we have not been getting the revenue we need to cover the gap,” Kyle explained, adding that this has led to the accumulation of national debt in both prosperous and challenging times.
While the borrowing spree during the pandemic was largely unavoidable, critics argue that recent years could have been utilized to stabilize financial conditions.
Projections from the Congressional Budget Office forecast that the national debt could escalate to over $52 trillion by 2035—an estimate made prior to the implementation of Trump’s tax cuts.
Potential future implications of the ballooning national debt on personal finances are worrisome.
According to analysis from the Peterson Foundation, the current trajectory of the national debt could result in a contraction of the economy by $340 billion in 2035, impacting the job market by decreasing the number of jobs by roughly 1.2 million and potentially reducing wages by 0.6%.
A report from Yale Budget Lab in 2025 suggested that a sustained increase in the deficit, reflecting 1% of GDP, could escalate annual auto loan interest costs by $60, mortgage interest by $600, and small business loan interest by approximately $1,000 within five years.
The pattern depicted evokes a pervasive sense of economic unease.
“What happens when everybody gets nervous?” Kyle asked, drawing attention to the ripple effects of diminished consumer spending and hampered investments in productivity that could lead to a recession.
Here are specific avenues through which individuals are likely to experience the ramifications of growing national debt:
Depressed wages and jobs are a significant concern.
The aforementioned Peterson analysis exemplifies that by 2035, the shortfall could result in a loss of roughly 1.2 million jobs.
Moreover, wages may decline as much as 3% by 2055, presenting a stark contrast to anticipated wage growth amidst rising national debt.
Higher taxes are another outcome., As the government seeks to balance the budget and tackle the national debt, tax increases are an obvious avenue.
“Unless we have miraculous growth, that tax rate will have to rise on people,” stated Itamar Drechsler, a finance professor at the Wharton School.
However, discussions about tax hikes are fraught with political toxicity, leaving their likelihood uncertain in the current environment.
Additionally, rising interest rates are inextricably linked with economic growth discussions.
Increased government debt is projected to drive up interest rates, influencing consumers’ ability to secure loans for homes, vehicles, and business investments.
Kyle noted, “If [government debt] gets bigger and bigger, interest rates are going to be going up,” indicating a correlation between budget deficits and action from the Federal Reserve to tame inflation.
The Yale study indicated that extending the federal deficit by 1% of GDP would ultimately lead to an increase in average annual car loan interest by $200 and $2,300 for mortgages over three decades.
Moreover, inflation is expected to rise alongside the national debt.
The same Yale Budget Lab report highlighted that a 1% increase in GDP could lead to households losing $300 to $1,250 in purchasing power in 2024 dollars after five years.
Survey insights from the Peter G. Peterson Foundation revealed that 80% of participants, including a substantial proportion of Republican respondents, believe that the downgrade of the United States’ credit rating heightens the urgency of addressing national debt.
Kyle poses urgent questions regarding the potential for U.S. debt default, which could trigger a global debt crisis with no precedent for a major reserve currency.
He warned, “If we go ahead and break that debt ceiling, that means we’re defaulting on our debt.
We’re not paying the interest on the debt.
That would be an international catastrophe for which there is no precedent for a major reserve currency of the world.
We don’t know exactly what would happen, but it won’t be good.”
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