The U.S. national debt has hit $40 trillion, and the Trump administration is facing questions about its budget plans as a result. The good news is, there has one: The American economy will apparently grow its way out of any fiscal crisis.
“It’s been a problem for 35 years,” Trump told reporters Friday. “And what we have now … is we have tremendous growth. And the way you take care of debt is with growth, and we have tremendous growth. We’ve never had growth like we have right now.”
“There’s nothing magic about the $40 trillion number,” Treasury Secretary Scott Bessent said on CNBC last week, “And we can grow our way out of that.”
Economists would be inclined to agree with Bessent: The value of the debt, while an extraordinary milestone, doesn’t hold much relative weight. What economists (and more importantly, the bond market) is watching is the debt-to-GDP ratio: This demonstrates the level of borrowing by a country against its economic capacity to repay and service it.
Currently, the U.S. ratio stands at 122%. To bring it back into a lower balance, an economy could cut its borrowing or—as Bessent suggests—increase its growth.
When the alternative is cutting borrowing and, as a result, government spending, the growth plan is a more optimistic and politically palatable route.
It’s also the latest in a series of solutions proposed by the White House: Originally, President Trump had suggested that tariffs would pay down the national debt (the plan was quickly nixed by a Supreme Court ruling ordering the administration to repay approximately $100 billion in revenues that the justices deemed illegal).
Trump later suggested a “golden visa” strategy—selling rich immigrants visas at $5 million each—could pay down the national debt. The policies were novel, but economists broadly welcomed action by the Trump Administration on the fiscal picture.
But now there a bond market reckoning looming. The risk premium demanded by investors for holding the 30-year Treasury rose to over 5.3% in recent days, prompting U.S. Treasury Secretary Scott Bessent to deploy $4 billion or more in unscheduled buybacks. If the U.S. can’t pay its debt, the worst-case scenario is a default crisis.
So, can the U.S. grow its way out of debt? It’s a “fantastic story,” says Kent Smetters, Boettner Professor of economics and public policy at the Wharton School at the University of Pennsylvania.
Unfortunately, Professor Smetters—the faculty director of a fiscal analysis tool called the Penn Wharton Budget Model—says the plan is also “pretty clearly” not feasible. He explained in an interview with Fortune: “People often get the causality kind of opposite. They think more growth, less of a debt problem, and in reality, it’s just the opposite … We deal with the debt issue in order to try to aid economic growth, not vice versa.”
In a perfect policy world, borrowed funds would be deployed to expand the macroeconomy—infrastructure around the AI boom could be one example; skills and training another. In reality, huge drawdowns on the budget come in the form of Social Security, Medicare and Medicaid, which present unique cost problems.
He explained: “A lot of people don’t realize this … the initial calculation of benefits actually includes productivity growth on top of inflation. So what happens is that hypothetically, even if we double the impact of, say, AI on productivity, it barely moves the balance because the initial benefits go up.”
The unique makeup of the labor market in healthcare also presents a snag: “If you want doctors to take Medicaid, Medicare patients … and you’re not increasing spending with the fact that the rest of the economy suddenly is growing really large, doctors could get good payments from servicing non-Medicare and Medicaid payments because wages are going up very well.”
Smetters suggests the government would ultimately spend more to retain healthcare professionals in roles that benefit public services.
Despite the flaws in the growth plan, policymakers will be aware they need some response on debt questions in the run-up to midterms.
Indeed, new research from the nonpartisan budget think tank the Peterson Foundation, conducted by the Democratic firm Global Strategy Group and the Republican firm North Star Opinion Research, found that only 10% of voters said the debt issue will not impact their ballot decision later this year.
“With the midterm elections approaching, voters are making it clear that they want candidates with a decisive plan to address our unsustainable budget and debt,” Michael Peterson, CEO of the Peterson Foundation, said in a statement.
Part of the plan
It’s worth noting that while Bessent has mentioned growth as a tool against a debt reckoning, he hasn’t said it’s the only route the administration is looking at.
Some debt-hawk camps are lobbying to cut federal deficits to 3% of GDP—about half their current levels—while others want to form a committee (similar to President Obama’s Bowles-Simpson Commission) to examine budget options. These options haven’t been ruled out by the current administration.
Confidence in U.S. economic expansion stems primarily from the artificial intelligence boom, whose capital expenditures have already become the chief driver of growth. But—as Tesla CEO Elon Musk pointed out in an X post last week—the timing of efficiencies coming to fruition, and a debt reckoning, will be close.
“We are going through a big investment boom right now, it’s transitory, it probably lasts three to five-ish years,” Smetters said. “You could still get lots of enhancements throughout the rest of the economy, but nothing that comes close, even remotely close to, dealing with the debt issue.”
With the debt compiled across both Republican and Democratic administrations, the ultimate outcome of the budget question will come down to the credibility of U.S. policymakers on both sides of the divide.
“Credibility is really important,” Smetters said. “They discount a lot—but if you tell the debt markets: ‘Hey, we think we’re gonna be able to grow our way out of this,’ and then a year later they’re not seeing any improvements from that, then it’s a credibility issue.”
He added: “There’s lots of clickbait trying to create panic, and panic creates panic. It’s a bank run issue, and we don’t want that. What we do want, though, is a serious discussion about forward-lookingness; we actually do have time to have rational discussions about this.”
Facts Only
* The U.S. national debt has reached $40 trillion.
* Trump stated that tremendous growth can resolve debt issues by taking care of debt with growth.
* Treasury Secretary Scott Bessent stated that the value of the debt does not hold much relative weight compared to the debt-to-GDP ratio.
* The debt-to-GDP ratio currently stands at 122%.
* Reducing the debt-to-GDP ratio can be achieved by cutting borrowing or increasing economic growth.
* A growth plan is presented as a more optimistic and politically palatable route than cutting spending.
* Past proposals included tariffs to pay down debt, which were halted by a Supreme Court ruling.
* A "golden visa" strategy was suggested as a debt reduction method.
* The risk premium demanded for 30-year Treasury bonds rose to over 5.3% recently.
* Treasury Secretary Bessent deployed $4 billion or more in unscheduled buybacks.
* Professor Kent Smetters stated that the plan to grow out of debt is not feasible.
* Initial benefit calculations for social programs include productivity growth on top of inflation.
Executive Summary
The U.S. national debt has reached $40 trillion, prompting discussion about budget plans under the Trump administration. A key theme presented is that economic growth can resolve fiscal crises. Treasury Secretary Scott Bessent stated that the path forward involves using growth to manage debt, noting that the value of the debt is less significant than the debt-to-GDP ratio, which measures borrowing against economic capacity. To lower this ratio, an economy could either reduce borrowing or increase growth. While cutting borrowing reduces spending, increasing growth is presented as a more politically palatable alternative.
Economists view growth as a solution, but Professor Kent Smetters suggests that the plan is not automatically feasible. He points out that real-world constraints exist, specifically in the unique cost structures of social programs like Social Security, Medicare, and Medicaid, which complicate the simple macroeconomic model. Furthermore, labor market dynamics, particularly in healthcare, introduce complexities regarding how growth translates into spending impacts on various sectors.
Despite the theoretical framework, there is political pressure for action, evidenced by bond market volatility reflected in rising risk premiums and Treasury buybacks. Policymakers face a need to address debt issues leading up to midterms, with voter sentiment suggesting a demand for concrete plans. Various proposals exist among debt-hawks, ranging from deficit cuts to establishing comprehensive budget review committees.
Full Take
The narrative presents a tension between an optimistic macroeconomic theory and the complex, non-linear realities of fiscal policy implementation. The core dynamic involves framing growth as the primary solvent for debt, which functions as a compelling political narrative by offering a positive alternative to austerity. However, this framing relies on assumptions about causality—that growing the economy inherently solves the financing problem—which are challenged by the structural realties described in the analysis of healthcare costs and productivity dynamics.
The shift from focusing on the absolute debt number ($40 trillion) to the relative metric (debt-to-GDP ratio) is a strategic move, shifting the focus from a static liability to dynamic capacity. This process mirrors how policy debates often function: establishing an easily digestible focal point while the underlying mechanics are significantly more complex. The critique introduced by Smetters highlights that models based on pure growth assumptions fail when confronted with entrenched structural costs, such as entitlement programs and labor market adjustments in healthcare.
The final element—policy credibility—suggests that the debate is less about economic inevitability and more about political signaling. When policymakers articulate a growth strategy, the effectiveness of that signal hinges entirely on future outcomes. The potential for panic to drive short-term reactions, rather than long-term structural reform, remains a persistent risk in this environment. The question then becomes whether prioritizing immediate market reassurance (through buybacks) successfully builds the credibility needed for difficult, long-term policy adjustments rather than simply managing perceived risk.
Bridge Questions: If growth is insufficient to resolve debt due to structural constraints like healthcare costs, what specific structural adjustments must be prioritized over pure growth stimulation? How can policymakers ensure that the pursuit of a politically palatable growth narrative does not obscure the difficult trade-offs inherent in financing social security and healthcare systems? What mechanisms can be established to decouple short-term market reactions from long-term fiscal credibility?
Sentinel — Human
The article synthesizes economic claims, political maneuvering, and academic critique regarding the national debt, presenting a complex viewpoint rather than a monolithic argument.