US debt crosses $40 trillion: Why America’s debt burden keeps growing

US federal debt has breached the $40-trillion mark for the first time, the Treasury Department said on Wednesday, triggering fresh warnings of a fiscal crisis in the making. With entitlement spending and interest costs rising faster than revenues, squeezed further by tax cuts, fiscal watchers say the trajectory is becoming increasingly unsustainable.

According to the Treasury’s daily statement on cash and debt balances, total public debt outstanding stood at $40.047 trillion as of Tuesday. Of this, $32.266 trillion was in Treasury securities held by the public, while intra-governmental holdings accounted for the remaining $7.782 trillion.

Why is US debt rising?

The US government spends more than it collects in taxes and other revenues. The difference is the budget deficit, which is financed through borrowing. Each year’s deficit adds to the accumulated national debt.

Several factors are driving the gap.

Social Security and Medicare spending is rising

Social Security and Medicare are among the largest federal spending programmes. An ageing population means spending on these programmes continues to rise, putting pressure on the budget even without new discretionary spending.

In July, higher entitlement spending was among the main reasons federal spending increased from a year earlier.

Interest on existing debt is becoming a major expense

The US now has to borrow not only to finance its budget deficit but also to service its existing debt.

Net interest payments on the public debt reached about $963 billion in the first 10 months of fiscal 2026, up $117 billion from the same period a year earlier, according to the CBO data. The increase reflects both a larger debt pile and higher long-term interest rates.

This creates a difficult cycle: higher debt means higher interest payments, which increase government spending and can lead to more borrowing. The US is now spending more on interest payments than on national defence and 50 per cent more than on children’s programmes, according to CNN.

Tax cuts are reducing government revenue

The Trump administration’s tax legislation has also added to the fiscal gap. The CBO estimated that the 2025 tax and spending law, Public Law 119-21, would reduce revenues by about $4.5 trillion over 2025-34, partly offset by $1.1 trillion in lower direct spending, resulting in a net $3.4 trillion increase in deficits.

Earlier CBO estimates also showed that the legislation would add significantly to interest costs because larger deficits increase borrowing requirements.

Defence spending remains high

Defence is another major claim on the federal budget. Higher military spending adds to expenditure at a time when the government is already running large structural deficits.

The combination of defence, entitlement programmes and interest payments leaves Washington with less room to bring down the deficit without either cutting spending or raising revenue.

Why is the problem getting harder to fix?

The US has been able to sustain high debt because Treasury securities remain a core asset in global financial markets and the dollar is the world’s dominant reserve currency.

But borrowing is becoming more expensive. Higher Treasury yields mean the government must pay more when it refinances existing debt and raises new money.

As the country’s debt pile deepens, CNN reports that investors are seeking higher returns to compensate for the perceived risk of holding US government debt. This has pushed bond yields, which set the benchmark for borrowing costs across the broader economy, higher.

The CBO expects net interest outlays to rise from about $1 trillion in fiscal 2026 to $2.1 trillion in 2036, while debt held by the public is projected to reach 120 per cent of GDP by 2036.

This creates a feedback loop: large deficits increase debt; higher debt increases interest costs; and higher interest costs make future deficits larger.

The $40 trillion milestone, therefore, is not itself a sign that the US is about to default. The bigger concern is whether the country’s debt continues to grow faster than its economy and whether investors eventually demand significantly higher returns to hold US government debt.