In 2020, Congress passed five pieces of legislation allocating some $4 trillion for COVID-19 relief. As America’s public health and economic picture improves, it is bringing renewed attention to the nation’s fiscal situation.
Here are five facts on the U.S. national debt:
- In 2020, the U.S. federal government ran a deficit of $3.1 trillion.
The federal deficit is the annual difference between government revenues and government outlays. Income taxes are the largest source of government revenue, representing about 50% of all collected funds, while Social Security is the most significant outlay at over $1.2 trillion. The federal debt is the sum of all the deficits (and surpluses) from all previous years, and federal debt held by the public represented 105% of U.S. Gross Domestic Product between April and June of 2020 according to the Federal Reserve Bank of St. Louis.
- U.S. debt held by the public as a share of our economy is now at the second highest level ever, only below the debt level after World War II.
U.S. debt held by the public is $22.5 trillion (or 105% of GDP in the second quarter of 2020), which is the highest debt-to-GDP ratio ever, the second highest rate behind the previous record of 118% in 1946 following World War II. The biggest drivers of the U.S. debt are from “mandatory spending,” which refers to ongoing obligations the government is legally required to pay every year that are not subject to annual appropriations from Congress. This includes programs like Social Security, Medicare, and interest payments on the debt.
- Japan has the highest government debt as a share of its economy in the world. The U.S. is tenth.
Countries vary widely in terms of the amount of debt they hold compared to their GDP. Japan has nearly 250% of government debt compared to their GDP, the most in the world and double the United States’ ratio, which is 105%. Other countries maintain low levels of government debt, such as Denmark at just over 33%.
- Interest payments alone on the U.S. national debt are projected to reach $378 billion this year.
That’s almost one quarter of all the income taxes the government took in last year and almost 60% of the entire Defense Department’s budget. By 2030, interest payments on the debt are projected to rise to $665 billion, costing more than the current annual outlays for Medicaid.
- Since the beginning of 2021, the yield on the U.S. 10-year U.S. Treasury note has surged from .91% to 1.51% at the end of February.
According to CNBC, the 10-year Treasury is “perhaps the most widely tracked rate across the financial universe … It is used as a benchmark for many other types of debt, including corporate and agency bonds.” It is also “a barometer for 30-year fixed mortgage rates, auto loans, student loans and credit card annual percentage rates.” Rising rates could be due to increased investor confidence that the economy is rebounding, but it could also reflect fears about inflation or the size of the U.S. federal debt load.