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Our national debt is once again in the news, since it has supposedly reached a staggering $40 trillion. I say "supposedly" only because that's not really true. $40 trillion is the amount of Public Debt Outstanding, which includes $7.75 trillion of Intergovernmental Holdings (which means the debt that one branch of the government owes to another). The true measure of federal debt is Debt Held by the Public, which is now $32.3 trillion. You can see the history of all these numbers here.
I offer the following charts—some of which you've likely never seen before—to help one understand our national debt and its implications.
Is our federal debt out of control? a ticking time bomb? No. It's still manageable, but we would all be much better off if the federal government downsized its spending and reduced our tax and regulatory burdens.
Chart #1
Chart #1 shows a long history of federal debt owed to the public. It's plotted on a logarithmic scale so you can appreciate how fast or slow it's been growing over time. Over the period shown, federal debt has increased by an annualized rate of 8.8% per year. Note that the growth of federal debt in recent years is not very different from what it's been over the past seven decades on average.
Chart #2
Chart #2 shows the evolution of federal spending and federal revenues since 1990. It's also plotted on a logarithmic scale. The difference between the two lines is the federal deficit, which in the past 12 months has totaled $1.95 trillion. Note that spending has slowed dramatically since 2022, while revenues have been grown significantly in the past few years.
Chart #3
Chart #3 shows federal spending and federal revenues as a percentage of GDP. The dashed lines show post-War averages for both. Federal revenues relative to GDP today are only slightly lower than they have been for many decades, but federal spending is substantially higher. From this fact alone it's not a stretch to say that the main reason we have a large federal deficit is that federal government is spending very high from an historical perspective.
Chart #4
Chart #4 shows federal revenues as a percentage of GDP vs. top federal income tax rates. Remember the hue and cry when President Reagan slashed tax rates in the 1980s? Supply-siders like Art Laffer argued that lower tax rates would be such a stimulus to growth that revenues would remain strong. Left-wingers argued that the deficit would explode. Based on this chart it's easy to say that if anything, lower tax rates led to a surge in tax revenues from 1983 through 2000. It's the Laffer Curve in action; if tax rates are too high, then lowering them will lead to more growth, rising real incomes, and higher tax revenues. Tax rates were clearly too high in the decades leading up to the 1980s.
Extrapolating from Charts #3 and #4, the worst thing the federal government could do to reduce the deficit is to raise tax rates. Lower spending is the only sensible course of action.
Chart #5
When people speak about the burden of the federal debt, they usually refer to the size of the debt relative to the size of the economy. That's shown in Chart #5. Today federal debt is a smidgen less than the size of our economy. It's only been higher during WW II. But that's not a good measure of our debt burden.
Chart #6
Chart #6 shows federal debt as a percentage of GDP, which is the correct way to measure the burden of our debt. Note that it was much higher in the 1980s than it is today. That's because interest rates were much higher back then than they are today. Example: having a mortgage that is equal to 30% of your annual income is much harder if mortgage rates are 8% than if they are 6%. Chart #7 gives you the history of 10-yr Treasury yields to help keep these facts in perspective.
Chart #7
