Some Context on America’s Debt-to-GDP Worries

Has America’s debt hit a tipping point? At March’s end, America’s publicly held debt topped 100% of GDP, a mark unseen since 1946 outside a brief blip post-pandemic.^[i] Many say this indicates significant fiscal stress (to put it mildly), with gloomy Congressional Budget Office (CBO) projections compounding worries. But comparing debt to GDP, while commonplace, is off base. Governments service debt with tax revenue, not GDP, and Uncle Sam currently collects more than enough to pay his bills. Thus, we think today’s fears of debt sinking America’s economy are false—another bullish brick in stocks’ wall of worry.

Round numbers and America’s debt always garner headlines, making this milestone catnip for many. What they miss: America’s debt-to-GDP ratio has floated around 100% since 2020, when pandemic-era spending and economic restrictions skewed the math skyward. It initially soared when lockdowns crushed output as spending rose, piercing 100%.^[ii] Then it fell back toward 90%, before climbing again. The latest uptick is marginal—from 99.5% in September to 100.2% at March’s end.^[iii]

Mind you, a few pundits sensibly acknowledged the round 100% figure is trivial. Yet even those who dismiss round numbers’ importance argue debt is too high. One Wall Street Journal writeup called triple-digit debt-to-GDP a “potent symbol of the fiscal stresses on the US.”^[iv] Nearly everyone seems worried with the ratio’s trajectory—what if debt-to-GDP keeps growing?!? The CBO’s latest forecast underscores this, calling for US debt-to-GDP hitting 120% by 2036 as perpetual deficits stack up.^[v]

Yet debt-to-GDP is an apples-to-shovels comparison—what economists call a stock-flow mismatch. GDP calculates a country’s annual flow of economic output: the sum of consumer spending, private investment, government spending and investment and net exports (exports minus imports). Meanwhile, government debt accumulates gradually over time. This isn’t a like-to-like comparison. That would compare debt to assets. At the risk of deploying an analogy,^[vi] it is a little like sweating that a mortgage balance exceeds a household’s income. Instead, you would compare the required payment to the income and the balance to household assets—including the home’s value. That is how balance sheets work.

Governments service debt with tax revenue—not GDP. Hence, debt’s interest cost as a share of revenue is a much more important indicator of fiscal health. America’s interest payments gobbled around 18.5% of total tax receipts in fiscal 2025.^[vii] Yes, this is on the high end of its post-WWII range. But this still means the US government can service its debt with tax receipts more than five times over. This mirrors levels seen in 1991 – 1992, a stretch where US stocks rose 40.4% and annual GDP growth averaged 1.7%.^[viii] And it sat at the dawn of a rip-roaring decade for both, which helped lower the ratio through rising tax receipts. Public debt’s being relatively more burdensome didn’t hamstring America’s economy or stocks.

Also, the CBO’s forecasts aren’t ironclad. As we have covered before, they rely on imperfect inputs like historical average interest and growth rates, use straight-line math and extrapolate today’s economic conditions and government policies forward. This oversimplified approach is a key reason these forecasts often miss the mark.

Look instead to markets, which suggest debt fears are excessive. Global investors’ demand for US Treasurys remains strong, as we wrote last week. At roughly 4.35%, US 10-year Treasury yields sit well below their 5.9% average since 1970.^[ix] Neither is what you would expect if investors were fleeing US assets in fear of its fiscal health.

Consider also how other developed economies have fared alongside high debt-to-GDP ratios. Take the UK, which breached the 100% mark back in September 2024. Its economy hasn’t been perfect, but with UK stocks up 30.1% (and ahead of global stocks) since and annual UK GDP growing in 2024 and 2025, debt’s exceeding GDP hasn’t been disastrous.^[x] Or look at Japan. Debt has exceeded GDP since the mid-1990s—and topped 200% since 2020!^[xi] While Japanese GDP and market returns haven’t been world-leading over that span, they haven’t been a downward spiral, either.

Heck, America’s economy has grown massively since 1946, the last time (pre-2020’s brief blip) its debt-to-GDP ratio broke 100%.^[xii] Think this through: Why did that ratio fall back below 100%? We didn’t pay the debt down. Fast economic growth and investment led GDP to simply outgrow debt. Will that recur now? Who knows—spending plans are political decisions. But the mere existence of debt topping GDP didn’t forestall the very growth that lowered the ratio.

So we think there just isn’t much proof a “high” debt-to-GDP ratio inherently weighs on growth. Other factors loom much larger. We doubt anyone will ever consciously get over these fears, but as people subconsciously see they don’t come true, it should help stocks climb.