The US national debt has crossed $40 trillion, putting fresh pressure on President Donald Trump’s administration to explain how it intends to contain a fiscal burden that has accumulated under governments of both parties.
Trump and Treasury Secretary Scott Bessent are putting economic expansion at the centre of their response. Their argument is that stronger output can reduce the weight of the US national debt relative to the economy, potentially making the government’s obligations more manageable without relying primarily on large spending cuts.
Washington Is Betting on Faster GDP Growth
Trump told reporters on Friday that debt had been a problem for decades and argued that the answer was stronger growth. “The way you take care of debt is with growth,” he said.
Bessent made a similar case in an interview with CNBC, saying there was “nothing magic about the $40 trillion number” and that the US could “grow our way out of that.”
The distinction matters because investors generally assess government debt against the size of the economy rather than focusing only on the headline dollar amount. US federal debt currently stands at about 122% of gross domestic product, according to Federal Reserve data cited in the original report.
Reducing that ratio can come from faster economic expansion, lower borrowing, or a combination of the two. Growth is politically attractive because aggressive deficit reduction can require difficult decisions over spending and taxation.
The administration has previously considered other sources of revenue. Trump proposed using tariff receipts to help reduce debt, although a Supreme Court ruling subsequently required the administration to repay approximately $100bn in tariff revenue deemed unlawful. He has also promoted a $5m “gold card” visa programme for wealthy immigrants as another potential source of government revenue.
Pressure is also visible in Treasury markets. The premium investors demanded on 30-year US government debt recently pushed yields above 5.3%, according to the source report, while the Treasury deployed at least $4bn through unscheduled bond buybacks.
Why Growth Alone Faces Difficult Arithmetic
Kent Smetters, Boettner Professor of Business Economics and Public Policy at the Wharton School of the University of Pennsylvania, argues that relying on growth alone reverses the relationship between debt and economic performance.
“We deal with the debt issue in order to try to aid economic growth, not vice versa,” Smetters told Fortune.
One problem is the composition of federal spending. Large programmes including Social Security, Medicare and Medicaid have costs that can rise alongside wages, prices and productivity. Faster economic growth therefore does not automatically translate into an equivalent improvement in the government’s fiscal position.
Smetters pointed to healthcare as one example. If private-sector wages and medical payments rise with a stronger economy, government programmes may eventually have to spend more to keep doctors and other healthcare professionals serving publicly funded patients.
The broader debt arithmetic also depends on more than GDP growth. What matters is whether government revenue expands quickly enough relative to spending, borrowing requirements and interest costs. If interest expenses and primary deficits continue rising, even a healthy economy can struggle to push the debt-to-GDP ratio materially lower.
That distinction makes the cost of Treasury financing particularly important. Higher yields increase the cost of refinancing maturing debt and issuing new securities, potentially absorbing some of the fiscal benefit generated by stronger nominal GDP.
The AI Boom May Not Last Long Enough
Much of the administration’s optimism is tied to artificial intelligence investment and its potential to raise US productivity. Heavy capital expenditure linked to AI has already provided support to economic activity, according to the source report.
Smetters, however, expects the current investment surge to be temporary. “We are going through a big investment boom right now, it’s transitory, it probably lasts three to five-ish years,” he said.
Even substantial AI-driven productivity improvements would not necessarily solve the budget problem because some government benefits are structured to reflect productivity and wage growth. That means part of the additional economic output can eventually be matched by higher spending commitments.
The political timetable adds another complication. Research cited by Fortune from the nonpartisan Peterson Foundation found that only 10% of voters surveyed said the debt would have no effect on their decision in this year’s midterm elections.
Bessent has not presented growth as the administration’s only possible response. Proposals circulating in Washington include reducing federal deficits toward 3% of GDP and creating a bipartisan commission to examine longer-term budget options.
For investors, the test will be whether stronger growth begins improving the fiscal ratios that Treasury markets actually price. If borrowing continues rising faster than the economy, policymakers may eventually face harder choices involving spending, revenue and entitlement programmes.
Smetters said maintaining credibility with debt investors will be critical. The immediate $40 trillion milestone may be largely symbolic, but the trajectory behind it is not.
