“Full Faith and Credit” Means a Claim on America

My colleague David Hebert recently argued that the federal debt is being measured in a misleading way.  

Debt-to-revenue and interest-to-revenue ratios, he argues, deserve a larger place in the fiscal debate than the standard debt-to-G.D.P. measure. These measurements ask a simple question: “How does the national debt compare to what the federal government actually collects?” 

Hebert does not dismiss debt-to-G.D.P. entirely. He acknowledges its usefulness for comparing debt burdens across countries and tracking long-term trends. He is correct that debt-to-revenue and interest-to-revenue deserve more attention. But he is mistaken to suggest the debt-to-G.D.P. has little to say about fiscal sustainability. Americans should still consider debt-to-G.D.P. because it captures another danger: federal debt can become a fiscal and political claim on the productive economy. 

Hebert argues that G.D.P. is the wrong denominator because it measures Americans’ output, not the federal government’s income. He writes that “your neighbor got a raise” does not mean you can open a new credit card because “his income does not service your debt.” That is true for households. The analogy works less well for sovereign debt. 

A household can increase its income and cut spending, but cannot make its neighbor pay its bills. The federal government can reach into household incomes through taxes, borrow today against expected future revenues, reduce promised spending, and succumb to the temptation of inflationary finance, which lowers the real value of dollars already earned and saved. That makes the danger of government debt broader than that of household debt. 

When the federal government borrows, it backs those loans with the “full faith and credit” of the United States government. Article I, Section 8, Clauses 1 and 2 of the U.S. Constitution give Congress the power to lay and collect taxes, duties, imposts, and excises to pay the government’s debts and to borrow money on the credit of the United States. Drawing on these powers of Congress, 31 U.S.C. § 3123, “Payment of obligations and interest on the public debt,” states, “The faith of the United States Government is pledged to pay, in legal tender, principal and interest on the obligations of the Government issued under this chapter.”  

That pledge rests on the federal government’s legal power to command resources through taxation and borrowing, as well as the broader temptation to reduce the real burden of nominal obligations through inflation. Those resources come from present and future taxpayers. 

Granted, the federal government should still budget with the prudence expected of a household. The problem is that political incentives often reward the opposite. Elected officials can gain support from concentrated beneficiaries of spending while spreading the costs across a broad tax base. Agencies, meanwhile, have incentives to defend and expand their budgets, missions, and authority. 

Congress can push costs into the future, spread them across millions of taxpayers, and hide them through borrowing and inflation. Under those incentives, “full faith and credit” becomes a political escape hatch. Instead of forcing restraint today, it reassures creditors that Washington can claim a larger share of the productive economy tomorrow. 

G.D.P. matters because it measures the broad productive base exposed to those claims. It is the income and output from which Washington can draw. The more debt-to-G.D.P. increases, the larger Washington’s obligations become relative to the U.S. economy. 

Hebert is right that G.D.P. growth does not automatically translate into federal revenue growth. A larger economy does not pay off the debt on its own. Congress still must collect taxes, issue debt, cut spending, or accept the risks of inflationary finance. A larger economy, however, gives Washington more taxable income, more borrowing capacity, and more wealth exposed to future policy changes. The fact that G.D.P. belongs to Americans is the reason the ratio should trouble them. 

That is why debt-to-G.D.P. survives as a useful measure. It compares federal obligations to the economy that must ultimately bear them. Debt-to-revenue shows the pressure on the federal budget. Interest-to-revenue shows how much current cash flow is being eaten by past borrowing. Debt-to-G.D.P. shows the scale of the federal claim relative to national production. The three measures answer different questions, but, under current projections, all point in the same grim direction. 

In its 2026 baseline, the Congressional Budget Office projects that debt held by the public will rise from 101 percent of G.D.P. in 2026 to 120 percent in 2036, above the previous record reached after World War II. Using the data files provided by the C.B.O., I calculated projected debt-to-revenue and projected interest-to-revenue ratios. Both show equally dismal futures.  

As Hebert notes, the FY 2025 debt-to-revenue ratio was well over 500 percent. By FY 2036, C.B.O. data indicate that public debt rises to 676.5 percent of annual federal revenue. In plain terms, the public debt would equal nearly seven years of federal receipts. That does not mean Washington must retire all the debt at once. It means the debt stock would be nearly seven times the government’s annual cash inflow, leaving less room for error as interest costs rise. By FY 2036, the net interest-to-revenue ratio increases to just under 26 percent, meaning roughly 26 cents of every revenue dollar collected would go to net interest payments before paying for anything else. 

This danger will affect the public through various channels. Aside from the visible tax increases and spending cuts, this debt can raise borrowing costs throughout the economy. C.B.O. warns that large and growing federal debt can push up interest rates, crowd out private investment, and slow output growth. That burden falls on families trying to buy homes, businesses trying to expand, and workers whose wages depend on capital investment. Slower growth is a hidden tax on future opportunity. 

Inflationary finance creates another burden when persistent deficits encourage politicians to pressure the Federal Reserve to accommodate federal borrowing. When the dollar loses purchasing power, savers and wage earners pay. Inflation shifts costs without a vote and lets Washington reduce the real burden of past promises by weakening the money in which those promises are paid. 

Spending cuts grow more painful the longer lawmakers wait to make them. A government that waits until interest costs dominate the budget will have less room to protect core functions, reform entitlements incrementally, or reduce taxes. Fiscal irresponsibility narrows the range of decent options. 

That is why the phrase “full faith and credit” should trouble taxpayers. Creditors hear reassurance but citizens should hear a claim. The federal government is promising its creditors that it can and will find the resources to pay, and those resources ultimately come from the American people. 

Hebert’s revenue-based metrics help reveal the near-term danger. If interest consumes a rising share of receipts, ordinary budget politics becomes a fight over leftovers. More of each tax dollar goes to bondholders before Congress decides anything new.  

The debt-to-G.D.P. ratio adds a deeper warning: the size of Washington’s obligations relative to the economy that supports them. If debt grows faster than G.D.P., the federal obligations grow faster than national output from which they must ultimately be financed. That cannot continue indefinitely without higher taxes, lower spending, inflation, weaker growth, or some combination of all four. 

This is where the “neighbor got a raise” analogy misses. The neighbor’s raise cannot service my household credit card. The taxpayer’s raise can service federal debt when Washington decides to claim part of it. A rising debt-to-G.D.P. ratio shows that Washington’s obligations are growing relative to the future production from which they may be financed. 

The measurement debate, however, should not distract from the moral and political issue. Public debt shifts claims over time, allowing today’s officials to buy current support while passing the bill to future taxpayers. Congress and voters can enjoy spending now, while the costs appear later as interest, inflation, higher taxes, and slower growth. 

A country can carry debt. It cannot prosper under fiscal illusion where borrowing, deferred taxation, and inflation hide the government’s true cost. Debt-to-revenue, interest-to-revenue, and debt-to-G.D.P. each cut through part of the illusion. Revenue measures show whether Washington can meet its bills from current collections. G.D.P. measures show the size of the economy exposed to Washington’s future claims. The debt danger is clearest when we read them together. 

All three measurements tell the same story: public debt is growing faster than the government’s capacity to manage it prudently. The more the federal government borrows, the more it places claims on private income, capital, labor, and future production. 

The debt is dangerous because G.D.P. belongs to Americans, and Washington has more ways than any private borrower to reach it. 

Thomas Savidge is a Research Fellow at the American Institute for Economic Research. Follow him on X.com at @thomas_savidge.