Washington’s Debt Is Falsely Measured

When a business wants to borrow money, the bank doesn’t compare its debt to the sector's revenue. It looks at the company’s own books; what it earns, what it owes, and whether the cash coming in can service the cash going out. The same is true when private people apply for a mortgage. This isn’t a hard principle to grasp. It’s the foundation of every lending decision made in America, from corporate bond issuance to credit card applications.

Washington has exempted itself from this entirely. The standard measure of federal indebtedness is the debt-to-GDP ratio. Debt held by the public recently crossed 100 percent of GDP, which sounds alarming enough that politicians have been citing it in floor speeches and op-eds for weeks. But GDP is the wrong denominator. It measures the total output of every household, business, and farm in the country, none of which is available to the federal government to pay its bills.  What the government does have are federal receipts, and those two, while related, are totally different numbers.

The distinction between “GDP” and “receipts” matters enormously in practice. Lenders, credit rating agencies, and financial analysts have long understood that the relevant measure of a borrower’s debt burden is how that debt compares to the borrower’s own income, not the income of the broader economy. When Moody’s or S&P evaluates a municipal bond, they look at the issuer’s revenue streams. When a bank underwrites a commercial loan, it calculates a debt-service coverage ratio from the borrower’s actual cash flow. The reason for this is simple: debt is repaid from income, not from the abstract concept of “economic activity.”

Applied to Washington, this means that the relevant question is not “how does the national debt compare to everything America produces?” but rather “how does the national debt compare to what the federal government actually collects?”

In FY2025, federal revenues came in at $5.2 trillion. Federal debt held by the public now stands at $30.8 trillion. This gives the federal government a debt-to-revenue ratio of almost 600 percent. Total federal debt, which includes intragovernmental debt (i.e., debt that the federal government owes itself), sits at just under 750 percent of federal revenues. The median worker earns roughly $64,000 per year. If that person carried the same ratio of debt as the federal government, they would have $380,000 or $480,000 if you use total federal debt as credit card debt. This isn’t sustainable for a household, and it is not sustainable for a nation.

The debt-to-GDP ratio obscures all of this. At just over 100 percent of GDP, the debt sounds manageable, almost like a modest mortgage relative to a decent income. At almost 600 percent of actual revenue, the picture looks considerably more dire. Both describe the same amount of debt. The difference is that one uses a denominator that belongs to Washington, while the other uses one that belongs to Americans.

This is more than just an academic exercise. The number that Washington uses to describe its debt shapes the political conversation about how serious the problem actually is. A debt-to-GDP ratio of 100 percent, while high by historical standards, gives legislators and commentators a way to argue that the situation is concerning but manageable. A debt-to-revenue ratio over 500 percent makes that argument considerably harder to defend. It also changes the nature of the discussion. When the debt looks modest relative to GDP, the onus is on fiscal hawks to explain why anyone should worry. But when debt is measured against actual revenues, the onus falls on the other side to explain how it ever gets paid back. As it stands right now, it would take a minimum of six years’ worth of federal revenue to pay off the debt. That’s every single penny of revenue, leaving none for programs and paychecks.  

Consider what this actually means. Late last year, a funding lapse nearly grounded flights and shuttered TSA checkpoints during the busy holiday travel season. Washington treated this as if it were a crisis. While certainly annoying for plenty of travelers, it only lasted a few weeks. Retiring the national debt from revenue alone would require that kind of total shutdown for years, and it would expand beyond just the airport. No Social Security checks, no defense spending, and no Medicare/Medicaid coverage.

The carrying costs of this debt alone should make this obvious. For the first time in US history, Washington spent more than $1 trillion on net interest payments alone. Interest on the debt is now the second largest line item on the federal budget, behind Social Security but ahead of things like national defense and health spending. Unlike those, interest payments are a pure cost of having borrowed so much for so long. Measured against federal revenues, Washington spends about 19 cents of every dollar it collects just on servicing the existing debt. Even more alarming, that debt was issued at remarkably low interest rates and is now rolling over to higher rates, meaning that this share is only going to go up, not down.

None of this is to say that debt-to-GDP ratios are useless. Economists use them to compare debt burdens across countries and to track long-term trends. But it is a poor tool for assessing fiscal sustainability precisely because GDP growth does not automatically translate into revenue growth for the government. If the economy grows faster than the debt, the ratio shrinks, but the debt, interest payments, and structural deficits that produced the debt in the first place are all still there. Claiming fiscal progress because of a booming economy is like saying you can open up a new credit card because your neighbor got a raise. His income does not service your debt, and it never did.

There is a reason that no private lender, no rating agency, and no serious financial analyst evaluates a borrower the way Washington evaluates itself. Income-based debt metrics exist because they are honest. They reflect what the borrower can actually service.  When Washington uses GDP as its yardstick, it is not adopting a neutral analytic convention. It is choosing the largest possible denominator to make the largest debt look as small as possible.

That choice has consequences. It has allowed both parties to treat a slow-moving fiscal crisis as a manageable long-run challenge rather than an urgent near-term problem. It has given cover for deficit spending that would be fiscally indefensible if measured against what the government actually takes in. 

The federal government is not entitled to a share of GDP. It is entitled to what it collects, and that is the number against which its debts should be measured. When a household, business, or municipality hides the true scale of its debt behind an inflated denominator, we call it what it is: financial misrepresentation. When Washington does it, we publish it in headlines and cite it in budget hearings as if it were meaningful.

The debt-to-GDP ratio isn’t going away. It’s too useful to too many people in Washington who benefit from understating the problem. But usefulness to politicians is not the same thing as accuracy, and accuracy is what we need now, more than ever. The federal government can only spend what it collects. Its debts can only be repaid from what it collects. Measuring those debts against anything else isn’t analysis, it’s marketing.

‍David Hebert is a senior research fellow at the American Institute for Economic Research.