See how the national debt grew to more than $36 trillion

The U.S. national debt has surpassed $36 trillion, driven by factors including tax cuts under Presidents Bush and Trump, wars in Iraq and Afghanistan (estimated to cost $4-6 trillion), the expansion of Medicare Part D, responses to the Great Recession and the COVID-19 pandemic, and bipartisan spending deals. These actions have led to Washington spending nearly $2 trillion more annually than it collects, necessitating further borrowing and raising concerns that the debt will soon exceed its World War II peak as a share of the economy; future policy decisions are projected to further increase deficits.

Analysis

The United States national debt has exceeded $36 trillion, a significant accumulation primarily over the last two decades, contrasting sharply with a fiscal surplus in 2001. Current annual deficits are approaching $2 trillion, compelling the Treasury Department to continually borrow, which further escalates the national debt. Projections indicate that the debt-to-GDP ratio may soon surpass its post-World War II peak. Key contributors to this burgeoning debt include the Bush tax cuts initiated in 2001, estimated to add $1.5 trillion and later largely made permanent, and the wars in Iraq and Afghanistan, costing between $4 trillion and $6 trillion. The Medicare Part D expansion in 2006 added to unfunded liabilities. The response to the Great Recession starting in 2008 involved approximately $2 trillion in emergency measures under both Bush and Obama administrations, coupled with a significant drop in tax revenue. The 2013 extension of most Bush tax cuts was projected to cost $4 trillion over a decade. Further, the Trump tax cuts of 2017 were estimated to add between $1.5 trillion and $2.9 trillion to the debt. The COVID-19 pandemic response involved multiple relief packages totaling over $6 trillion. While the Biden administration's Inflation Reduction Act aimed for some deficit reduction, its net impact is debated, and other spending initiatives have continued. Current fiscal plans suggest a further increase in federal deficits by $2 trillion to over $5 trillion in the next decade, indicating persistent fiscal imbalance.

Key Decisions for Investors

• Investors should closely monitor the trajectory of U.S. fiscal policy and deficit spending, as sustained high levels could exert upward pressure on long-term interest rates and potentially increase currency volatility, impacting fixed income valuations and international asset allocations.
• Consider the implications of rising sovereign debt on market sentiment and the potential for future fiscal consolidation measures, such as tax increases or spending cuts, which could affect various economic sectors and corporate profitability.
• Evaluate portfolio resilience to potential macroeconomic headwinds stemming from high national debt, including inflationary pressures or a crowding-out effect on private investment, and consider strategies to mitigate these risks.