Trump says America can grow out of its $40 trillion debt. Economists warn Social Security makes the math much harder
The U.S. national debt has crossed the $40 trillion mark, putting renewed pressure on the Trump administration to explain how it intends to stabilize the country’s finances. President Donald Trump and Treasury Secretary Scott Bessent have offered an optimistic answer: grow the economy fast enough to reduce the burden of the debt.
“It’s been a problem for 35 years,” Trump told reporters. “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.”
Bessent has made a similar argument. “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.”
The strategy is appealing because faster economic growth can improve the government’s finances without requiring politically difficult tax increases or spending cuts. But Kent Smetters, a professor of economics and public policy at the University of Pennsylvania and faculty director of the Penn Wharton Budget Model, says growth by itself cannot overcome the structural forces pushing federal spending higher.
“It’s a fantastic story,” Smetters said of the growth strategy, but he also said it is “pretty clearly” not feasible as a solution to the debt problem.
The $40 trillion debt milestone is only part of the problem
The headline figure of $40 trillion is less important to economists than how quickly federal debt is growing relative to the economy.
The debt-to-GDP ratio is a more useful measure because it compares government borrowing with the nation’s capacity to produce income and ultimately service that debt. The U.S. ratio is already above 100%, highlighting why investors are paying closer attention to Washington’s fiscal trajectory.
The Congressional Budget Office projects the federal deficit will reach $1.9 trillion in fiscal 2026 and grow to $3.1 trillion by 2036. As a share of GDP, the deficit is projected to rise from 5.8% to 6.7% over that period.
That means the government is not simply dealing with a large existing debt balance. It is continuing to add substantial amounts of new debt each year.
Why Trump and Bessent are betting on growth
The administration’s argument is straightforward: if GDP grows significantly faster, the existing debt becomes smaller relative to the economy.
That approach is also more politically attractive than immediately asking Congress to raise taxes or cut major benefit programs. Growth could theoretically increase tax receipts while reducing the debt burden without requiring large reductions in government spending.
Artificial intelligence investment is one of the biggest reasons for optimism. AI-related capital spending has become an important driver of economic growth, raising hopes that productivity gains could eventually lift output across the broader economy.
But the timing presents a problem. Smetters said the current investment boom could last only three to five years.
“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.”
That creates a mismatch between a potentially temporary growth surge and fiscal obligations that are expected to continue rising for decades.
Social Security is one reason growth alone may not be enough
This is where the debt problem connects directly to Social Security.
Social Security is already one of the federal government’s largest mandatory spending programs, and its costs are rising as millions of baby boomers move through retirement. The 2026 trustees report projects that the Social Security retirement trust fund will be depleted in the fourth quarter of 2032. At that point, incoming revenue would cover only 78% of scheduled retirement benefits without congressional action.
That does not mean Social Security suddenly disappears in 2032. It means the program would no longer have sufficient reserves to pay the full benefits promised under current law.
The underlying problem is demographic. Social Security operates largely on a pay-as-you-go basis, with payroll taxes from today’s workers financing benefits for today’s retirees. As the ratio of workers to retirees changes, the program faces increasing financial pressure.
And that pressure is occurring at the same time the federal government is already running large deficits.
Medicare and Social Security are driving future spending
Social Security is not the only entitlement program putting pressure on the federal budget. Medicare and Medicaid add another major layer of spending.
The Congressional Budget Office has projected that Social Security and Medicare will account for a substantial share of the growth in mandatory federal spending. That makes it difficult to solve the debt problem simply through faster economic expansion.
Smetters argues that even stronger productivity growth does not automatically solve the problem because benefit formulas and healthcare costs respond to changes in the economy.
“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.”
That is an important distinction. Economic growth can increase the size of the economy, but some government obligations also rise as wages, prices and other economic measures increase.
Rising interest costs make the debt harder to outrun
The other major problem is interest.
The government must pay interest on the debt accumulated from previous borrowing. As the debt grows and interest rates remain elevated, an increasing portion of federal revenue can be consumed simply by servicing existing obligations.
CBO projects net federal interest costs will reach about $1 trillion in 2026 and rise to approximately $2.1 trillion by 2036.
That creates a feedback loop: larger deficits require more borrowing, more borrowing creates a larger debt balance, and a larger debt balance produces more interest payments.
Those interest payments then compete with Social Security, Medicare, defense and other federal priorities for budget dollars.
This is why simply pointing to GDP growth does not settle the fiscal debate. The government needs growth to outpace the combination of new borrowing and rising interest costs.
The bond market is already watching the math
Investors in Treasury securities have another way of expressing concern: the interest rate they demand to lend money to the U.S. government.
Long-term Treasury yields have recently risen sharply, with the 30-year yield moving above 5%. Bessent responded by increasing Treasury buybacks of longer-dated securities in an effort to support the market. (Reuters)
But market intervention does not eliminate the underlying deficit.
Smetters warned that credibility is particularly important because investors ultimately need to believe Washington has a credible path for stabilizing its finances.
“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.”
The concern is not necessarily that the U.S. will suddenly default. Rather, investors could demand higher yields if they become less confident that policymakers have a sustainable fiscal plan.
Trump has offered several ways to tackle the debt
The growth strategy is only the latest idea put forward by the Trump administration.
Trump previously argued that tariff revenue could help pay down the national debt. That approach was disrupted after the Supreme Court ruled against the administration’s use of the tariff authority in question, requiring roughly $100 billion in tariff revenue to be repaid.
Trump later promoted a “golden visa” strategy under which wealthy immigrants could pay $5 million for residency.
Both proposals highlighted the same underlying challenge: the federal government needs substantially more revenue, substantially lower spending, faster economic growth, or some combination of all three to stabilize the debt.
The administration has not ruled out other fiscal measures. Some deficit hawks have argued for reducing the deficit to roughly 3% of GDP, while others have proposed a commission modeled on the Bowles-Simpson process to examine potential spending and revenue changes.
Social Security could force the debt debate sooner
The approaching Social Security shortfall makes the broader fiscal problem harder to postpone.
If Congress does nothing, the depletion of the retirement trust fund would trigger an automatic reduction in scheduled benefits. The 2026 trustees report puts the depletion date in 2032, giving lawmakers only several years to reach a compromise. (Social Security Administration)
At the same time, the federal government is paying more to service its existing debt.
That creates a difficult three-way fiscal squeeze: Social Security spending is rising, interest costs are rising, and the government continues to run large annual deficits.
Economic growth can help by expanding the tax base. But unless growth is exceptionally strong and sustained, it may not be enough to overcome those structural pressures.
The debt problem is also becoming an increasingly important political issue.
Research cited by the Peterson Foundation found that only 10% of voters said the debt issue would not affect their voting decision ahead of the midterm elections.
“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.
That puts both parties in a difficult position. Social Security and Medicare are enormously popular, while tax increases and spending reductions are politically painful.
The result is a temptation to rely on economic growth as the least politically disruptive solution.
The real test is whether growth can outrun the debt. The strongest argument for the administration is that the U.S. economy has enormous productive capacity, particularly if AI produces a sustained productivity boom.
But the fiscal challenge is not simply the size of the economy today. It is the gap between federal revenues and spending over time.
Smetters puts the issue in terms of causality.
“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.”
That argument goes directly to the role of Social Security. Even if AI and other technologies produce stronger growth, the government still has to deal with retirement benefits, healthcare spending and interest payments that continue accumulating.
Smetters said policymakers should not create unnecessary panic, but he also argued that the country needs a serious discussion about the long-term numbers.
“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.”
For Trump and Bessent, the challenge is therefore bigger than getting GDP to grow faster. They need growth strong enough to change the trajectory of debt while Washington confronts the programs and interest costs that are pushing spending higher.
With the national debt already above $40 trillion and Social Security facing a projected trust-fund depletion in 2032, the question is increasingly whether America can grow its way out; or whether growth will merely buy policymakers more time to make the harder decisions.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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