The Wrong Denominator:
How the Use of GDP Obscures U.S.
Debt Risk
Public discourse surrounding the national debt of the United States frequently invokes a reassuring comparison: that the total federal debt, while large in absolute terms, remains sustainable because it constitutes a manageable percentage of gross domestic product (GDP).
As Mark Twain famously once noted, “There are three kinds of lies: lies, damned lies, and statistics.” Likewise, the frequently-cited "debt-to-GDP ratio" is treated as a barometer of fiscal health, a shorthand for the nation's capacity to meet its obligations. However, this framing—intentionally or otherwise—obscures the more relevant metric: the federal government's ability to service its debt through actual income, through tax and other federal revenues. A more accurate and revealing assessment would compare national debt not to GDP, a measure of total economic output, but to the government's own recurring receipts. Doing so would paint a far starker—and more honest—picture of America’s fiscal trajectory.
To appreciate the misleading nature of the debt-to-GDP ratio, it is necessary to first understand what GDP measures. GDP represents the total monetary value of all final goods and services produced within a country's borders in a given year. It is calculated through one of three primary methods: the production approach (summing value-added across industries), the expenditure approach (summing consumption, investment, government spending, and net exports), and the income approach (summing incomes earned by factors of production). (Bureau of Economic Analysis, 2024). While comprehensive as a measure of economic activity, GDP is not equivalent to government income; it reflects the aggregate performance of all economic actors—households, firms, and governments—but offers no direct insight into the U.S. Treasury’s capacity to collect taxes, pay interest, or reduce principal.
Despite this categorical distinction, GDP is often invoked as if it were analogous to personal income in household budgeting metaphors. A household earning $100,000 per year with $50,000 in debt may seem comfortably solvent. But such logic breaks down when applied to the federal government. The United States does not earn the equivalent of its GDP. In fiscal year 2023, for example, the federal government collected approximately $4.4 trillion in total revenue—comprising income taxes, corporate taxes, payroll taxes, and other sources—while the national debt surpassed $34 trillion (Congressional Budget Office, 2024). Framed against GDP (roughly $27 trillion), the debt appears to be around 125% of national output. However, when compared to revenue, the figure exceeds 770%.
The widespread reliance on debt-to-GDP ratios can be viewed not merely as an analytical oversight, but as a form of misdirection to which economists and policymakers figures have become accustomed and reliant. Economists and policymakers frequently invoke GDP to normalize what would otherwise appear alarming. GDP cannot be treated as though it were analogous to the national gross income, because national gross income does not belong to the government. Imagine a scenario in which a person applies for a loan based not on his or her income, but on the consolidated income of his or her town. Debt-to-revenue ratios, which more accurately reflect fiscal capacity, are rarely emphasized—possibly because they are more politically inconvenient.
Moreover, the analogy between sovereign borrowing and private-sector debt breaks down under closer inspection. Unlike households or firms, governments can roll over debt indefinitely, provided creditors (bondholders) retain confidence in repayment. Yet even within this paradigm, interest expense matters. As interest rates rise, so too does the cost of servicing outstanding debt. In fiscal year 2024, interest on the federal debt exceeded $1 trillion—surpassing the entire defense budget and becoming the largest line item in the federal ledger (Congressional Budget Office, 2024). If the federal government must dedicate nearly a quarter of its revenue just to pay interest, the issue is not abstract or long-term—it is structural and immediate. Measured against tax receipts, the United States’ national debt equals more than seven times annual revenue. (Congressional Budget Office, 2025).
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By tethering debt metrics to GDP, policymakers obscure the real constraint: cash flow. Just as a business cannot service debt from its gross sales if it lacks sufficient net income, the federal government cannot meet long-term obligations based on the economy’s output unless it can efficiently extract revenue from that output. And the U.S. tax base, already politically constrained, is increasingly insufficient to sustain current spending levels, let alone pay down debt.
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This gap between output and fiscal capacity also introduces moral hazard. As long as debt is presented in relation to GDP, policymakers may feel emboldened to expand deficits without grappling with the hard limits of taxation and interest burdens. Fiscal illusions facilitate fiscal irresponsibility. A more honest approach would force discussions of prioritization, entitlement reform, tax policy. Yet these conversations are frequently deferred, anesthetized by a denominator that flatters rather than informs.
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The practice of comparing U.S. national debt to GDP, while superficially logical, serves more as rhetorical cover than analytical truth. GDP measures economic activity, not governmental solvency. If public discourse is to align with fiscal reality, then national debt must be assessed against actual revenue. Only then can the magnitude of America’s fiscal imbalance be properly understood and responsibly addressed.
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References
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Bureau of Economic Analysis. (2024). Measuring the economy: A primer on GDP and the national income and product accounts. U.S. Department of Commerce. https://www.bea.gov
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Congressional Budget Office. (2024). The Budget and Economic Outlook: 2024 to 2034. https://www.cbo.gov/publication/58946
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Congressional Budget Office. (2025). Revenues in Fiscal Year 2024: An Infographic. https://www.cbo.gov/publication/61185
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Dempsey, D and Stevens, J. (2024). What is a DSCR loan? MH Insider. https://mhinsider.com/dscr-loan-details/