Why Today’s Debt Path Looks Different*
A Comparison Of Three Post-World War II Fiscal Eras
In last year’s One Big Beautiful Bill Act (OBBBA), Congress added at least $4.1 trillion to federal deficits over the next decade, but it is only one of many factors expected to push federal debt to more than $56 trillion, or roughly 120 percent of GDP in 2036.
As debt continues to increase, there are genuine concerns about what this trajectory means for the economy and household finances—especially the burden of rising interest costs. Although short-term fiscal policies have sometimes helped limit the severity of past downturns, there is little evidence that fiscal policy as a whole, including failure to pay for those interventions, has boosted long-term growth; if anything, the evidence points the other way.
It’s past time for policymakers to take a hard look at spending and revenues. Through higher debt and interest payments on that debt, delay only increases burdens on future generations and makes eventual adjustments more difficult.
The long-term pattern
The modern upward trend in federal debt began in 1974, when the federal debt-to- GDP ratio hit its lowest point since World War II. Since then, this debt ratio has generally grown, except for a brief decline from the mid-1990s to the early 2000s. That dip resulted from various pieces of legislation supporting deficit reduction and a mix of temporary, favorable conditions, such as baby boomers entering their most productive years and a revenue-boosting stock market boom. After that period, the debt ratio increased sharply, soon surpassing World War II levels.
After World War II, US policymakers faced a fiscal policy challenge that was the exact opposite of today’s. They had to increase spending and cut taxes so that projected surpluses under current law—or revenues significantly in excess of small amounts of mandatory or committed spending—would not hinder economic growth.
Today, massive deficits arise even in the best of times. In fiscal year 2019 and from 2022 to 2025—years surrounding the COVID-19 pandemic—the unemployment rate hovered around 4.1 percent, yet the annual deficit still approached $1 trillion in 2019 and hit approximately $1.8 trillion in 2025—a level it is expected to approximately maintain in 2026. Debt has been rising significantly faster than GDP, a situation that virtually all economists, even those who might once have thought otherwise, consider unsustainable.
While some worry that reducing the federal deficit causes a consistently shrinking economy, a quick look at the numbers suggests the opposite. In the period from 1946 to 1974 (the first period shown in the graph), the debt-to-GDP ratio decreased by about 3 percentage points per year on average; however, since the early 2000s, it has increased by roughly 3 percentage points per year. In contrast, GDP grew at its fastest rate—an average of 3 to 4 percent—during that first postwar period and about 2.2 percent in the first quarter of the 21st century. Even after adjusting for slower population growth, annual real GDP per capita growth has dropped by nearly 1 percentage point in this century compared to the period from 1946 to 1974.
In addition, the economy grew more rapidly during the first post-World War II period, and the distribution of market income and wealth became more equal rather than less. Today, they trend in the opposite direction.
Rapidly rising debt, greater wealth and market income inequality, and slower growth together define our modern condition. Fiscal policy, especially one where Congress refuses to pay for its spending, plays a major role on all three fronts.
The future looks even more alarming. Just sticking with the current law—meaning Congress and the President don’t engage in any more net giveaways—will maintain that debt-to-GDP growth rate of nearly 3 percentage points each year. Debt is expected to exceed $56 trillion by 2036. As a share of GDP, it would rise by roughly 20 percentage points between 2025 and 2036, reaching 120 percent.
What renders the future of debt growth particularly troubling is that two major crises this century—the Great Recession and COVID-19—were met with more fiscal stimulus than any prior non-war emergency. But Congress never provided offsetting funding for those fiscal responses, and those unfunded measures have contributed significantly to debt growth this century.
Where will policymakers go from here?
Projections based on current law indicate that dramatic debt growth will continue even without a major crisis. Total revenues will remain well below total spending, and the growth in the costs of Social Security, Medicare, and interest on the debt alone will exceed all growth in revenues, which derive largely from economic growth.
It’s literally impossible for debt to grow forever faster than income, whether in a household or a nation. At some point, policymakers must drastically rebalance spending and revenues. The longer they wait, the more drastic that rebalancing will have to be, and the greater the negative impact on economic growth and our capacity to allocate our resources to modern needs and opportunities.