In 2025, the U.S. federal debt exceeded $37 trillion, and the Congressional Budget Office forecasted in March 2025 that the debt will reach 156 percent of GDP by 2055. Using the RAND Budget Model, the authors demonstrate three ways besides default that U.S. policymakers could reduce the federal debt to the post–World War II lows by 2055: increase economic growth, raise revenue, and stabilize or reduce spending.

Preliminary Strategies for Reducing the Burden of Federal Debt

How the United States Reduced the Debt Burden Following World War II and What It Would Take to Do So Again

Vegard M. Nygaard, Carter C. Price, Akshaya Suresh

ResearchPublished Oct 9, 2025

In 2025, the U.S. federal debt exceeded $37 trillion. The Congressional Budget Office forecasted in March 2025 that the debt will reach 156 percent of gross domestic product (GDP) by 2055. Left unchecked, this debt could slow economic growth and require trillions in interest payments, crowding out spending on more productive and beneficial areas. However, the current debt burden is not unprecedented: At the end of World War II (WWII), the federal debt was 106 percent of GDP, but the federal government reduced this to 23 percent by 1974. The authors analyzed 80 years of economic data to identify how the United States reduced the federal debt burden in the three decades following WWII, why debt rebounded over the following 50 years, and how the federal government could once again bring down the debt burden by 2055.

Through the use of the RAND Budget Model, the authors show how taxes, spending, and economic changes could affect federal budget options. There are four ways to reduce the debt-to-GDP ratio: increase economic growth, raise additional revenue, cut spending, and reduce interest payments through default. The authors model the first three efforts, focusing on ways besides default that U.S. policymakers could reduce the federal debt to the post-WWII low of 23 percent of GDP by 2055.

Ultimately, U.S. federal policymakers will need to determine the specific combination of strategies to reduce the debt-to-GDP ratio. The RAND Budget Model allows both policymakers and economists to assess policy alternatives and their fiscal impacts over multiple decades.

Key Findings

Reducing the federal debt burden could save trillions of dollars in interest payments

  • Net interest payments in 2055 are projected to account for one-fifth of all federal expenditures.
  • Real (inflation-adjusted) cumulative net interest payments on the debt over the years 2025–2055 will have totaled $52.8 trillion, equivalent to 181 percent of U.S. GDP in 2024.
  • Reducing the debt-to-GDP ratio to the post-WWII lows by 2055 could reduce cumulative net interest payments over the next three decades by 45 percent.

The deficit relative to GDP can be decreased by increasing economic growth, raising revenue, and stabilizing or reducing spending

  • A 3.2 percent annual real GDP growth rate over the next 30 years would, by itself, reduce the debt to the post-WWII low of 23 percent of GDP by 2055. Such growth is double current projections and might not be feasible given slowing population growth and an aging workforce.
  • A simpler tax code might raise additional revenues by improving the efficiency of the economy and reducing compliance burdens on individuals and corporations. Additional revenues could come from increasing the share of federal revenues from corporations, which was 11 percent in 2024 but as high as 35 percent in 1950.
  • Ensuring that future federal spending does not grow faster than inflation would limit the debt-to-GDP ratio. Medical inflation, for instance, leads to higher costs for Medicare, Medicaid, and other health programs and is a key contributor to the baseline projection of 2.0 percent annual real expenditure growth rate between 2025 and 2055.

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Nygaard, Vegard M., Carter C. Price, and Akshaya Suresh, Preliminary Strategies for Reducing the Burden of Federal Debt: How the United States Reduced the Debt Burden Following World War II and What It Would Take to Do So Again. Santa Monica, CA: RAND Corporation, 2025. https://www.rand.org/pubs/research_reports/RRA2614-4.html.
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