On Sunday, a pivotal congressional committee in the United States greenlit President Donald Trump’s new tax cut bill, which could soon pass through the House of Representatives later this week.
This piece of legislation aims to extend the tax cuts first introduced in 2017 by Trump, potentially adding up to $5 trillion to the national debt.
Such increases in debt levels have raised alarms, especially following a recent downgrade in the U.S. credit ratings by Moody’s on Friday.
The agency pointed to concerns regarding the nation’s alarming $36 trillion debt, which is the highest in the world and raises significant worries about long-term fiscal stability.
Currently, the total amount of money the U.S. government owes to its lenders stands at $36.2 trillion, translating to a national debt that is 122 percent of the country’s annual economic output, or Gross Domestic Product (GDP).
Alarmingly, the debt is increasing at a rate of about $1 trillion every three months, a trend that has caught the attention of economists and citizens alike.
The highest recorded debt-to-GDP ratio occurred during the pandemic in 2020, soaring to 133 percent, placing the U.S. among the top 10 countries globally with the highest ratios.
To understand the dynamics at play, it is crucial to grasp the concept of the debt ceiling, which is the legal limit set by Congress on the amount of money the government can borrow to meet its existing obligations, such as Social Security, healthcare, and defense.
When the government exceeds its revenue, a deficit occurs, necessitating additional borrowing to cover expenditures.
Historical patterns reveal that since 1960, Congress has raised, suspended, or adjusted the terms of the debt ceiling 78 times, frequently enabling the government to borrow more.
The federal deficit, which reflects the annual shortfall between the government’s spending and its income, reached alarming heights during Trump’s first term, particularly in 2020 amid the COVID-19 pandemic when it surged to nearly 15 percent of GDP.
In contrast, under former President Bill Clinton’s administration, the U.S. experienced a federal surplus, largely attributable to favorable economic circumstances amplified by the dot-com boom along with tax hikes that boosted revenues.
When the U.S. government seeks to borrow funds, it turns to the Treasury, the federal government’s finance department, which issues various types of debt securities, including Treasury bills, notes, and bonds.
These securities essentially function as loans from investors to the government, who are guaranteed repayment along with interest.
Regarded as a safe investment, U.S. Treasuries have a long-standing reputation due to the minimal risk associated with the U.S. government’s repayment capabilities.
These debt securities vary in maturity periods: Treasury bills (T-bills) are short-term, maturing within one year; Treasury notes (T-notes) are medium-term, maturing between 2 to 10 years; and Treasury bonds (T-bonds) are long-term, maturing in 20 to 30 years.
Currently, the domestic holding of the U.S. debt constitutes approximately 75 percent or about $27.2 trillion of the total debt.
In detail, $15.16 trillion (42 percent) is held by private U.S. investors and entities, primarily in the form of savings bonds, pension funds, and mutual funds.
Additionally, intra-governmental U.S. agencies and trusts hold $7.36 trillion, while the Federal Reserve accounts for $4.63 trillion.
Amongst individual investors, Warren Buffett, through his company Berkshire Hathaway, stands as the largest non-government holder of U.S. Treasury bills, valued at $314 billion.
Conversely, foreign investors hold approximately one-quarter of U.S. debt, totaling around $9.05 trillion.
Over the past half-century, the portion of U.S. debt owned by foreign entities has increased significantly, surging from just 5 percent in 1970 to the current 25 percent.
Foreign countries opt to purchase U.S. debt as it serves as a reliable and stable investment for managing foreign currency reserves, stabilizing exchange rates, and ensuring consistent interest income.
Japan leads foreign holders with an impressive $1.13 trillion in U.S. debt, followed by the United Kingdom at $779.3 billion, and China at $765.4 billion, which fell behind the U.K. in March as the second-largest non-U.S. holder of treasuries.
A notable factor contributing to the Cayman Islands’ significant holding of $455.3 billion in U.S. debt is its status as a tax haven.
Meanwhile, Canada holds $426.2 billion in U.S. treasuries.
In light of recent tariffs imposed by Trump, both Japan and China have hinted that they might utilize their substantial U.S. Treasury holdings as leverage in trade discussions.
Japanese Finance Minister Katsunobu Kato recently stated that Japan’s considerable U.S. treasury holdings could be regarded as a “card on the table” in trade negotiations.
Moreover, China has progressively reduced its U.S. treasury holdings over the years, marking its lowest levels since 2009 as part of efforts to diversify its reserves amid ongoing trade tensions.
The increasing national debt has a substantial impact on the lives of average Americans.
As the government channels more funds toward interest repayments on the debt, it could lead to budget constraints and higher costs in public spending.
In response, the government may look to raise taxes to generate additional revenues, which could put a strain on everyday citizens.
Additionally, rising debt levels could lead to increased interest rates, making personal expenses like mortgages, car loans, and credit card debt progressively more expensive for many Americans.
image source from：https://www.aljazeera.com/news/2025/5/20/the-us-has-36-trillion-in-debt-what-does-that-mean-and-who-owns-it
