The Government Debt Dilemma

Before the neoliberal era, excessive government debt was a problem that mainly effected developing countries, but it is now a serious issue for many wealthy countries too. Even the US has seen a massive blowout in public debt, despite having a GDP per capita more than six times that of China.

In September 2000 US government debt was $5.67 trillion, and in 2008 it reached $10.02 trillion. In September 2012, at the end of Obama’s first term in office, US government debt was $16.1 trillion, much of this having been accrued during the global financial crisis. In September 2016, at the end of Obama’s second term in office, government debt was $19.6 trillion, and in 2020, at the end of Trump’s first term in office, it was $27 trillion. Government debt was $35.5 trillion in September 2024 at the end of Biden’s Presidency, but he had to deal with the COVID-19 pandemic, and in September 2026 US government debt reached $40 trillion.¹

These are very large numbers, but the gravity of the situation depends on the size of the economy. Government debt may best be viewed as a percentage of GDP, since this is instrumental in determining a country’s credit rating, and thus the interest rate it pays on the debt. US government debt was 96% of GDP in 1948, not unreasonable considering the cost associated with World War II. It was reduced to 31% of GDP by 1980, mainly through heavily progressive tax policies, but in 2026 it reached 122% of GDP.²

The main reason for the debt blow-out in the US, and a similar escalation in debt among many other developed countries, is a reduction in tax revenue, not an increase in government spending.

The best way to deal with these government debts is by increasing tax revenue, and the best way to do this is with a progressive taxes so the rich pay for most of it. This is better for the people as a whole, because the rich are not going to go hungry or be left homeless. Better for the economy, because the low and middle-income earners spend more of their income (and much of it locally). And justified, since the rich are the ones who benefited the most from the tax cuts that led to the debt blow-outs. This is particularly appropriate in view of the fact that the rich have also captured nearly all the increase in income during the time when much of this debt was accrued.

1. https://fiscaldata.treasury.gov/datasets/historical-debt-outstanding/historical-debt-outstanding www.jec.senate.gov/public/index.cfm/republicans/debt-dashboard – US government debt 2000-2026.
2. https://fred.stlouisfed.org/series/GFDEGDQ188S – US government debt as % of GDP.
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