A $40 Trillion Puzzle: Why Has the United States Failed to Address Its Federal Debt?

written by Matt Andrews

This is the first in a series of posts examining the United States federal debt through the lenses of governance and state capability.

The United States has a fiscal governance problem that it seems unable to address.

In fiscal year 2025, the federal government collected approximately $5.2 trillion and spent just over $7 trillion. The resulting deficit was approximately $1.78 trillion.

This was not an isolated result. The federal government last recorded a budget surplus in 2001. It has now run deficits for 24 consecutive fiscal years and in 32 of the past 36 years.

This contributed to a federal debt that passed $40 trillion in August 2026.

The annual figures fluctuate, especially during recessions and national emergencies, but the long-term trend is clear.

The deficit was approaching $1 trillion even before the Covid pandemic. It has exceeded $1.3 trillion every year since 2020 and remained near $1.8 trillion in 2025. The accumulated debt now creates a substantial expenditure of its own. In 2025, the federal government spent approximately $970 billion on net interest. This means that almost 14 cents of every dollar the federal government spent went toward interest on past borrowing.

In 2025, the federal government spent more on net interest than it spent on national defense: approximately $970 billion compared with $916 billion. The debt is therefore no longer only a budgetary or economic concern. It is potentially a national security problem. Interest payments compete with defense and other priorities while reducing the fiscal room available to respond to the next recession, conflict, pandemic or emergency.

Many also recognize that the current trajectory is problematic.

This concern appears across the media landscape, including reporting by Reuters, the Associated Press, Fox News and The Guardian. It also spans organizations with very different political orientations. The conservative Heritage Foundation emphasizes the growth of federal spending and borrowing. The Center on Budget and Policy Priorities emphasizes the combined effects of an aging population and a revenue base weakened by unpaid-for tax cuts. The bipartisan Bipartisan Policy Center tracks the country’s deteriorating fiscal position and describes the present trajectory as unsustainable. The nonpartisan Government Accountability Office warns that this trajectory presents serious economic, national-security and social risks. 

These organizations do not agree about what caused the problem or what should be done. But they do agree that there is a problem.

That gives us a puzzle.

The United States is not a country that is generally incapable of addressing difficult problems. Throughout its history, it has mobilized people, knowledge, and resources to respond to wars, financial crises, public-health emergencies, technological challenges, and profound social change. Its responses have often been incomplete, contested or imperfect. But the country has repeatedly demonstrated an ability to recognize important problems and act with considerable effect.

Why, then, has this particular problem been allowed to grow for more than a generation?

Put differently: Why has a problem recognized across the political spectrum not generated an effective and sustained response? And why do current projections assume that the debt and annual deficits will continue to rise?

I work at the Building State Capability program at Harvard Kennedy School. With my colleagues, I spend much of my time examining why governments can address some difficult problems but struggle with others.

Our work suggests that answering this question requires looking beyond a government’s resources. The United States has extensive fiscal data, highly qualified officials, sophisticated budget institutions, experienced political organizations, well-funded think tanks, and a political system with more than two centuries of experience. It does not obviously lack capacity.

The question is whether that capacity can be converted into action.

This directs attention to governance and capability. Governance concerns the mechanisms through which people make decisions, execute those decisions and hold one another accountable for the results. Capability concerns whether they can use the people, knowledge, resources and institutions available to make these mechanisms work in practice.

Fiscal-governance capability would therefore be demonstrated in the ability to make and execute decisions about revenues and expenditures, and to hold decision-makers accountable for their fiscal consequences.

Something within that process appears to be faltering. But which part?

Quinton Mayne, Jorrit de Jong and Fernando Fernandez-Monge offer a simple way to investigate this question, identifying three capabilities required for problem-oriented or problem-solving governance: data-analytic capability, reflective-improvement capability and collaborative capability:

• The first concerns whether the system can generate and use data to understand the problem. The United States produces extensive fiscal information. But does this information create a sufficiently common understanding of what is happening, why it is happening and what requires attention? Or does the same evidence become incorporated into competing political stories that reinforce existing positions?
• The second concerns whether the system can reflect on experience and improve. Can fiscal institutions and political actors examine the consequences of previous decisions, reconsider established assumptions and alter course? Where policies fail to produce expected results, are there mechanisms through which that experience changes subsequent decisions?
• The third concerns whether actors can collaborate across political and institutional boundaries. Collaboration does not require complete agreement. Nor does it remove legitimate differences over taxation, expenditure or the role of government. It requires mechanisms through which actors can move beyond those differences, develop a sufficiently common understanding and assemble enough agreement to act.

The United States appears to have achieved an important starting point: people across the political spectrum recognize that the fiscal trajectory is dangerous. But recognition has not translated into collective action.

Why not?

• Have political and institutional boundaries become too rigid?
• Are the existing mechanisms better at organizing disagreement than at helping actors work through it?
• Is the problem a failure to learn from experience?
• Or does the system generate large amounts of fiscal data without producing a shared account capable of motivating action?

These are questions, not conclusions.

This series will use the federal debt as a case through which to examine the three capabilities of problem-oriented governance. The purpose is not initially to prescribe which taxes should rise or which expenditures should fall. It is to understand where the process of governance is failing—and why a country with extraordinary capacity has been unable to address a problem that almost everyone can see.