In 1980, America’s publicly held debt reached more than $712 billion (about $2.8 trillion in 2025 dollars), or roughly 25 percent of annual U.S. gross domestic product (GDP). Today, that figure is a little over $30 trillion, or around 100 percent of GDP. And as the federal debt grew 42 times larger over that span, the economy grew only tenfold. You can’t expand the numerator four times faster than the denominator for 45 years without courting economic danger.
That’s where we find ourselves. The U.S. is at peace, and despite President Donald Trump’s claims, there’s no national emergency. And yet we’ve only seen debt as a higher share of GDP during the years of 1945, 1946, 2020, and 2021. Then, Republicans and Democrats knew to scale back. Now, debt explodes during emergencies and continues to grow in peacetime.
In 1946, after World War II, debt-to-GDP was 106 percent. It declined to just 25 percent by 1980, not only because of inflation and economic growth but because of real fiscal discipline. With budgets nearly balanced, the fruits of a booming private sector could actually reduce the burden. Beginning in the Reagan era, discipline gave way to a new normal of chronic budget deficits.
Three forces made the shift possible.
First, and the main cause of the mess we are in, is that the entitlement state became enormous yet untouchable. The Social Security reforms of 1983 are a rare example of bipartisan structural reform of a major entitlement program in U.S. history. Since then, despite economic and societal changes, the program has never been reformed. Never mind that it faces insolvency and the potential for automatic benefit cuts of more than 20 percent in 2033. The same is true of our other major debt driver: Medicare. And Medicaid is growing far beyond its original intent.
Democrats, occasionally helped by Republicans, have worked to expand welfare programs meant for lower-income people to those in higher and higher income brackets. The most recent and extreme example is the COVID-19–era expansion of the Obamacare tax credit to wealthier taxpayers, a significant share of whom enjoy early retirement. The fight over its continuation is what the government shutdown is about.
Second, Republicans discovered that promising tax cuts without offsetting spending cuts was politically painless so long as one claims that they “pay for themselves.” There is one rare and recent exception: this year’s “One Big Beautiful Bill,” which included $1.5 trillion in spending reductions over 10 years to offset some of the tax cuts. It’s not enough, but it’s something. Meanwhile, the Democrats love to claim that debt wouldn’t be a problem if the rich paid their “fair share.” They already do pay an enormous amount in taxes. But the numbers still don’t add up.
Finally, the Federal Reserve, starting under then-Chairman Alan Greenspan in 1987, learned how to anesthetize the political pain of budget deficits by keeping interest rates artificially low and monetizing debt. Politicians concluded that they could borrow endlessly without suffering political consequences. The problem is that this only works insofar as investors don’t worry that they will be paid back with inflated dollars.
That illusion has vanished. Interest costs have surged from $372 billion annually just a few years ago to nearly $1 trillion today, surpassing what we spend on defense or Medicaid. Within a decade, yearly interest payments are projected to nearly double, reaching $1.8 trillion. Even without new programs, the built-in deficit would keep rising and outpace economic growth. And Washington keeps adding more deficit spending.
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