How to Reduce the Federal Debt Burden

This year, the federal debt topped $38 trillion, and the United States now spends $1.1 trillion annually on interest payments alone. That’s more than the nation spends on defense—or on education, law enforcement, and scientific research combined. Nearly one-quarter of those interest payments flow to other countries, including China.

In a new report, our researchers use the RAND Budget Model to explore how the nation can tackle its debt burden. They look back to the post–World War II era, when a mix of fiscal restraint and strong economic growth helped shrink the debt from 106 percent of GDP in 1946 to just 23 percent of GDP by 1974.

What would it take to achieve a similar result today? The authors recommend that policymakers combine different policies to increase economic growth, raise revenue, and cut spending. This balanced approach could bring the debt back down to 23 percent of GDP by 2055.