Can America Have a Balanced Budget and Pay Down Its National Debt?

Introduction

When Kennedy took office, the national debt was $289 billion, and of this amount $270 billion was incurred during World War II.  As of the latest update, the current national debt of the United States is approximately $37.17 trillion. Every president except for Bill Clinton, and Lyndon Johnson in his last year in office, spent less than budgeted.  For all other years, the federal government spent more than it took in, increasing the national debt.  More specifically, the breakdown during each presidency is as follows:

• John F. Kennedy (1961–1963): The national debt increased by approximately $23 billion, an increase of 8%.
• Lyndon B. Johnson (1963–1969): The national debt increased by approximately $42 billion. However, in 1969 the federal government ran a budget surplus of $3.2 billion, With the surplus and national debt increased just over 13% over the Johnson years.
• Richard Nixon (1969–1974): The national debt increased by approximately $121 billion, a 39% increase.
• Gerald Ford (1974–1977): The national debt increased by approximately $224 billion, an increase of 57%.
• Jimmy Carter (1977–1981): The national debt increased by approximately $299 billion, an increase of 76%.
• Ronald Reagan (1981–1989): The national debt increased by approximately $1.86 trillion, an increase of 187%.
• George H. W. Bush (1989–1993): The national debt increased by approximately $1.55 trillion, an increase of 54%.
• Bill Clinton (1993–2001): The national debt increased by approximately $1.4 trillion from 1993-1997. However, during the years 1998-2001 the federal government had budget surpluses for four consecutive years.  Clinton’s overall increase in the national debt was 32%.
• George W. Bush (2001–2009): The national debt increased by approximately $5.85 trillion, an increase of over 105%.
• Barack Obama (2009–2017): The national debt increased by approximately $8.34 trillion, an increase of 70%.
• Donald Trump (2017–2021): The national debt increased by approximately $8.18 trillion, an increase of almost 41%.
• Joe Biden (2021–2025): The national debt increased by approximately $6.17 trillion, an increase of 25%.

What is the National Debt? 

The National Debt is the amount of money that the United States Treasury has needed to borrow to pay bills beyond the amount budgeted for any given fiscal year.  Who loans the U.S. this money?  The national debt is held by a combination of domestic and foreign entities. The largest domestic holder of U.S. public debt is the Federal Reserve Bank, with holdings of $5.24 trillion. Domestic Investors includes mutual funds ($3.7 trillion), depository institutions ($1.6 trillion), state and local governments ($1.7 trillion), pension funds ($1.0 trillion), insurance companies ($0.5 trillion), and U.S. savings bonds ($5.7 trillion).  There are also foreign Investors like Japan.  Japan is the largest foreign holder of U.S. public debt ($1.1 trillion), followed by China ($0.8 trillion), and the United Kingdom ($0.7 trillion). There is also debt held by various government agencies, such as the Social Security Trust Fund, which owns a significant portion of the debt.  Overall, the U.S. national debt is a mix of public debt borrowed from domestic and foreign investors and intragovernmental debt reflecting internal government transactions ^{1 and 2}.

How Significant is the Interest Paid on the National Debt?

In addition to the government spending more than it takes in, interest payments on the national debt have been a substantial and growing part.  For example, the U.S. government paid $749 billion in interest on the national debt through the first nine months of FY25, compared to $682 billion for the same period in FY24. This increase is due to the rapid accumulation of federal debt and higher interest rates. The Congressional Budget Office (CBO) projects interest payments will rise from $1.0 trillion in 2026 to $1.8 trillion in 2035. This makes interest payments the fastest-growing portion of the federal budget.  Relative to the size of the economy, interest payments on the national debt are expected to reach 3.2% of GDP in 2026 and 4.1% of GDP by 2035 ³. However, the actual interest payments on the national debt are projected to rise to 18.4% of federal revenues by the end of 2025 and 22.2% by 2035 ⁴.

However, the major contributing factor to the increase in national debt is failure to balance the budget. As noted earlier, there were only two presidents who managed to have budget surpluses. 

If the Annual Budget is Balanced, Can Our Government Pay Off Its National Debt? 

The answer is yes!  It will take a determined bipartisan Congress to create a balanced budget.  Budget spending and the projected income need to be balanced.  A portion of each year’s annual budget must be directed toward a multi-year plan to pay off the national debt.  This is much like the mortgage schedule that homeowners receive when they borrow money to buy a home.  Cuts in many programs will be necessary.  That is the hard part of finding a bipartisan middle ground!

The income level can and should be increased.  As noted in the Introduction, at one time the federal government taxed Americans who made over $400,000 per year at a rate of 91%.  Today, those making over $400,000 are taxed at only 37%, and if President Trump gets his planned tax changes that rate may drop to 22%. This potential plan does not reduce the federal deficit.  Although Trump claims that his tariff plan will generate income and make up for the decrease in tax income, the CBO estimates that the Trump budget will instead be a long-term drain on resources.

During the Eisenhower era (1953–1961), the top income tax rate was an astonishing 91%, applied to income over $400,000 (equivalent to about $4 million today). This was not a flat tax. Only income above the $400,000 threshold was taxed at that rate.  However, due to deductions and loopholes, very few actually paid the full 91%.  Still, even with deductions, the wealthy paid a significantly higher tax rate than today.  Most of the wealthy class often paid taxes reaching 40–60%.  In addition, during President Eisenhower’s administration, the corporate tax rate in the United States was relatively high. The top corporate tax rate was 52%, which was one of the highest rates in U.S. history. This high tax rate was aimed at generating revenue for post-war economic growth and infrastructure development. Today’s corporate tax rate is only 21%.  Yet, despite the high tax rate on the wealthy and corporations, the U.S. economy grew at an average of 4% annually.  Unemployment remained low, and income inequality was far less severe than today.  In addition, the high individual and corporate tax rates encouraged reinvestment in business expansion rather than excessive executive compensation.

Eisenhower’s tax rate was eventually lowered by his successors as follows: 

• John F. Kennedy (1961–1963): The top rate remained at 91%.

• Lyndon B. Johnson (1963–1969): The top rate was reduced from 91% to 70%.
• Richard Nixon (1969–1974): The top rate remained at 70%.
• Gerald Ford (1974–1977): The top rate remained at 70%.
• Jimmy Carter (1977–1981): The top rate remained at 70%.
• Ronald Reagan (1981–1989): The top rate was reduced from 70% to 50% in 1982 and further reduced to 28% in 1988.
• George H. W. Bush (1989–1993): The top rate was increased to 31% in 1991.
• Bill Clinton (1993–2001): The top rate was increased to 39.6% in 1993.
• George W. Bush (2001–2009): The top rate was reduced to 35% in 2003.
• Barack Obama (2009–2017): The top rate was increased to 39.6% in 2013.
• Donald Trump (2017–2021): The top rate was reduced to 37% in 2018.
• Joe Biden (2021–2023): The top rate remained at 37%.
• Donald Trump (2023–present): The top rate may be reduced by 15% from 37%, resulting in a rate could be 22%.

While there’s no official CBO estimate for a full return to Eisenhower-era rates, economists and policy analysts have modeled scenarios.  If the rate were set at 91% for incomes over $400,000, the estimated additional income would be between $300 and $400 billion.  Adding in a capital gains tax at the Eisenhower rate would add another $100 – $150 billion.  While such a high tax rate is not likely, raising the level back to Clinton’s almost 40% or Nixon’s 70% would still generate significant income.  In comparison, even these high rates are less than the 2025 rates in other countries.

Top Marginal (tax on the highest earners) Income Tax Rates by Country (2025)

Sweden (57%)

Denmark (55.9%)

France (55.4%)

Germany (47.5%)

UK (45%)

Australia (45%)

Japan (45%)

Canada (33%)

Singapore (24%)

The U.S. has lower top income tax rates than most wealthy nations, especially in Europe.  Corporate tax rates in the U.S. are mid-range, higher than tax havens like Ireland and Singapore but lower than many EU countries.

Rasing the top corporate tax rate to the Eisenhower administration level of 52%, is not likely.  If we consider the total corporate profits in the U.S., which were approximately $2.3 trillion in 2021, raising the tax rate to 52% could theoretically generate substantial additional revenue 1.

Debt-to-GDP ratio

This is a line of thinking in economics.  What matters most is the relationship between the national debt and the GDP, not just the raw size of the debt.

If GDP (the total value of goods and services produced) grows at least as fast as (or faster than) the national debt, then the debt becomes smaller relative to the size of the economy.  In other words, even if the absolute dollar amount of debt grows, the country can more easily handle it if the economy that supports it is growing too. This is like a household whose mortgage stays the same, but their income keeps rising — the payment becomes a smaller burden over time.

Economists often use the debt-to-GDP ratio (Total National Debt divided GDP) as a key measure of sustainability.  If GDP growth exceeds the interest rate on the debt, the ratio can fall even without cutting spending or raising taxes. Mainstream Keynesianeconomists — such as Paul Krugman and Olivier Blanchard — argue that if GDP growth outpaced interest rates, debt is manageable.

But there are big caveats to this line of thinking.  If GDP growth slows or interest rates rise sharply, the math can flip — making debt harder to sustain.  In addition, as mentioned earlier, political will to maintain stable deficits is also key, but difficult to achieve.  Debt sustainability depends on investor confidence — if lenders lose faith, borrowing costs can spike regardless of GDP growth.

GDP growth is helpful, but insufficient alone to significantly reduce the debt burden. Sustainable debt reduction requires both economic growth and active fiscal management (like a balanced budget or surpluses, and/or keeping interest costs low). In short, while economic growth helps, fiscal discipline and favorable interest conditions play an even larger role in reducing the debt burden.

Conclusion

While economic prosperity, the Debt to GDP ratio, is worth noting, there are essentially two ways to reduce the national deficit– cut spending and raise more revenue.  In addition, it would also help if the Federal Reserve cut the interest rate they charge banks to borrow. This in turn would affect the interest rate for the government allowing the government to refinance the old debt coming due at a lower rate. This is like a homeowner with a 7.4% mortgage refinancing at a new mortgage rate of 5%.

Americans need to elect representatives who will balance the budget.  As individuals, most of us strive to live within our income and plan ahead for a significant expenditure.  Our government should be held to the same standard.  America can and should pay off its national debt. 

Sources

Most of the data is from the Congressional Budget Office, National Bureau of Economic Research, Center for Economic Policy Research.

Other specific sources:

¹ Venditti, Bruno, “Charted: Here’s Who Owns U.S. Debt” – Visual Capitalist, December 10, 2024. 

² Amadeo, Kimberly, “Who Owns the U.S. National Debt?” January 19, 2023.

³ What Are Interest Costs on the National Debt? – The Balance, Peterson Foundation, July14, 2025.

⁴ Hyatt, Diccon, “A Record $1.2 Trillion Interest Payments Are Blowing Up” – Investopedia, September 13, 2024.