Last month, the U.S. national debt topped $39 trillion, and the portion of the debt (roughly $31 trillion) held by the public now exceeds 100 percent of GDP for the first time ever. It is projected to reach $40 trillion before the November midterm elections.
There are myriad reasons why this tsunami of red ink is bad news. But less talked about are the significant ways that the debt is making life harder for low-income American families.
- Inflation: Although most of the inflationary pressures facing the economy today are due to other policies—notably tariffs and the war with Iran, as well as a hangover from the Federal Reserve’s loose monetary policy during the COVID era—massive deficit spending also contributes to inflation. And, while inflation is problematic across the economy, it falls hardest on low-income Americans.
- Higher interest rates: Government debt drives up interest rates across the broader economy. This makes everyday borrowing—such as auto loans, credit cards, and mortgages—more expensive for lower-income consumers. Kent Smetter, faculty director of the Penn Wharton Budget Model, estimates that roughly 60 percent of the recent rise in treasury yields is due to expectations that the United States will continue to run massive deficits.
- Slower economic growth: A review of 80 empirical studies from 2010–2025 estimates that every one percent in the debt to GDP ratio above 100 percent results in a 0.033 percent decrease in economic growth. Given the current level of debt and its expected increase, that would lower this year’s GDP growth by roughly 0.8 percent points lower than it would be otherwise. This might not seem like a big deal, but compounded over time it means far fewer jobs and lower wages in the future.
- Crowding out needed assistance: This year, interest payments on the national debt will amount to more than $1 trillion, roughly 14 percent of all federal government spending. That is $1 trillion that cannot be spent on other things, including programs or tax cuts targeted to those most in need. Indeed, since middle class entitlements such as Medicare and Social Security are off-limits, and the Trump administration wants to dramatically increase defense spending, any spending cuts are likely to fall most heavily on programs for the poor.
There are few clean hands when it comes to blame for the debt. President Biden added roughly $4.7 trillion to the debt during his term. But Biden’s fiscal recklessness is dwarfed by President Trump who has already added $2.25 trillion to the debt since taking office in 2025. That’s on top of the $7.8 trillion in debt he ran up during his first term.
Compounding matters, the Trump administration doesn’t seem to understand either the scope or the causes of the problem. White House Deputy Chief of Staff Stephen Miller attributes the debt to fraud by “people who don’t belong here,” claiming that, “The extraction of wealth from American taxpayers to people who don’t belong here is the primary cause of the national debt.” That, as they say,is not just nonsense, but nonsense on stilts.
The Government Accountability Office (GAO) estimates that “improper payments,” which includes both fraud and simple errors, for 15 government agencies and 64 mostly social welfare programs, totaled $186 billion in 2025, far short of the $1.8 trillion deficit that year. In fairness, the GAO probably underestimates the actual mispayment level because it does not include a handful of programs such as Temporary Assistance to Needy Families (TANF) that are known to have high error rates. (The GAO does include the largest and most error-prone programs, including Medicare, Medicaid, SNAP, and the Earned Income Tax Credit). But there is no way that reducing “fraud, waste, and abuse”—as important as that is—will restore solvency.
Equally misguided are those on the other side who think that answer lies with simply raising taxes on the rich. Setting aside the fact that the top one percent of earners already pay 40 percent of federal income taxes, there simply aren’t enough rich people to balance the budget. Writing for the Committee for a Responsible Federal Budget, economist Jessica Reidl estimates that drastically increasing taxes on corporations and the top one percent of incomes (those earning more than $732,000/year), including wealth taxes and higher income taxes, could generate at best $7 trillion over the next 10 years. But that would fall far short of expected deficits which are projected to total more than $22 trillion over that same period. Other economists suggest the potential new revenue could be far less. Wealth taxes, for example, have a long history of generating less revenue than promised.
Ultimately, there is no way to reduce budget deficits, and ultimately the debt, without making difficult and likely unpopular choices. There will need to be real reductions in spending. That will have to include reducing spending on middle class entitlement programs, particularly Medicare and Social Security. which alone account for 36 percent of federal spending.
Debt reduction is seldom discussed in relation to poverty and economic mobility. (In today’s Washington, it’s seldom discussed at all). But it’s past time for those who talk about their concern for low income Americans to step up and make some hard decisions.