Can the U.S. Ever Climb Out of Its $36 Trillion Debt Hole?

Can the U.S. Ever Climb Out of Its $36 Trillion Debt Hole?

The U.S. national debt is a staggering $36.2 trillion as of early 2025, a number so massive it’s hard to wrap your head around. That’s $108,000 per citizen, or roughly the cost of a fancy sports car for every man, woman, and child in the country. Since 2016, the debt has ballooned by at least $1 trillion annually, hitting $34 trillion in December 2023 and climbing another $2 trillion in just over a year. Compare this to 2016, when the debt was $19.5 trillion—nearly half of today’s figure. Back then, the debt-to-GDP ratio was about 105%; now, it’s a precarious 122%, a level not seen since World War II. So, can the U.S. ever dig itself out? And will policies like tariffs make a dent? Let’s break it down.

A Debt Spiral Decades in the Making

The U.S. has carried debt since the Revolutionary War, but the modern explosion began in the 1980s. Tax cuts, defense spending, and entitlement programs like Social Security and Medicare drove deficits. The 2008 Great Recession added fuel, with stimulus packages pushing debt from $10.3 trillion in 2008 to $16.7 trillion by 2013. The 2017 Tax Cuts and Jobs Act under President Trump added an estimated $1.8 trillion to the debt over a decade, while COVID-19 relief programs under both Trump and Biden tacked on another $5-6 trillion. Today, annual deficits—when spending exceeds revenue—are projected to hit $2 trillion by 2030, with no end in sight.

Back in 2016, net interest payments on the debt were $240 billion, or 1.3% of GDP. By 2024, they’d skyrocketed to $892 billion, or 3.1% of GDP, surpassing defense spending. Why? Rising interest rates. The Federal Reserve hiked rates to combat inflation, doubling the average interest rate on federal debt from 1.7% in 2021 to 3.4% in 2024. Every percentage point increase adds roughly $70 billion annually to interest costs. If rates stay high, interest could hit $1.5 trillion by 2034, crowding out funding for roads, schools, or healthcare.

How Are We Paying for This?

The U.S. doesn’t “pay off” its debt like a credit card. Instead, it manages it by borrowing more to cover deficits and interest. The Treasury Department issues securities—bills, bonds, notes, and Treasury Inflation-Protected Securities (TIPS)—to investors like banks, foreign governments, and even the Federal Reserve. In 2016, 28% of public debt was held by foreigners (like China and Japan); today, it’s about 33%. The Fed, which held $6.1 trillion in 2022, has scaled back to reduce its balance sheet, shifting more to private investors and mutual funds.

When securities mature, the government pays them off by issuing new ones, rolling over the debt. This works as long as investors trust the U.S. to honor its obligations. A default—never seen in U.S. history—would tank global markets, spike borrowing costs, and crater the dollar’s value. Congress avoids this by raising the debt ceiling, suspended until January 2025 under the Fiscal Responsibility Act. But this is a bandage, not a cure. Without revenue increases or spending cuts, the debt keeps growing.

Can Tariffs Save the Day?

President Trump’s proposed tariffs—a 10% universal hike and 60% on Chinese imports—aim to boost revenue and protect U.S. industries. In 2018-2019, his tariffs generated about $80 billion, but they also raised consumer prices and hurt farmers, requiring $36 billion in subsidies. Businesses paid less in taxes due to trade disruptions, offsetting gains. Morningstar estimates a full 10%/60% tariff plan could raise $200-300 billion annually but would cut GDP by 1.6%, risking recession. Higher prices from tariffs could also fuel inflation, prompting Fed rate hikes that increase debt servicing costs.

Tariffs won’t shrink the trade deficit either, as capital inflows balance out trade imbalances. Retaliatory tariffs from other nations could further harm U.S. exporters. At best, tariffs might add marginal revenue, but they’re no silver bullet for a $36 trillion debt. Reducing deficits requires tougher choices: raising taxes, cutting entitlements, or both. Historically, post-WWII debt fell from 106% of GDP in 1946 to 23% by 1974, thanks to high GDP growth and modest deficits. Today’s aging population and rising healthcare costs make that unlikely without reform.

Is There Hope?

The U.S. could stabilize its debt with bold action. The Congressional Budget Office suggests that balancing the budget by 2049 would require cutting spending by 20% or raising taxes by 25%—or a mix of both. Plans like Simpson-Bowles (2010) proposed capping discretionary spending and reforming taxes, but Congress balked. Public support for deficit reduction is growing—57% of Americans in a 2023 Pew survey called it a top priority—but political gridlock persists.

Economic growth could help. If GDP outpaces debt growth, the debt-to-GDP ratio shrinks, making debt more manageable. But the World Bank warns that ratios above 77% for long periods—like the U.S. since 2009—slow growth by 0.017% per percentage point. At 122%, that’s a 0.8% annual hit, costing jobs and revenue. Investments in infrastructure or education could boost growth, but they’d need to be paired with fiscal discipline.

What’s at Stake?

The debt isn’t just numbers—it’s a burden on future generations. By 2052, rising debt could cut per-person income by 4.4%, as borrowing crowds out private investment. If creditors lose faith, a debt crisis could spike rates, slash the dollar’s value, and force austerity. Admiral Mullen, former Joint Chiefs Chairman, called debt the “most significant threat to our national security,” limiting resources for defense and social programs.

Thought Questions:

1. Should the U.S. prioritize spending cuts, tax hikes, or economic growth to tackle the debt—or all three?

2. Are tariffs a smart way to raise revenue, or do their economic costs outweigh the benefits?

3. How much debt is too much, and what would it take for you to trust Congress to act?

Photo Credit: CNN.com