How to Calculate the National Debt
The national debt equals the debt already owed plus every past deficit minus every past surplus, so it is a stock that grows in any year the budget is not balanced.
The National Debt formula
Calculator
Enter the starting debt plus the deficit and surplus totals to get the debt now, the yearly average and its interest cost.
Everything borrowed in earlier years and not yet repaid.
Add every year outlays beat revenue, so deficits of 45 and 30 enter as 75.
Add every year revenue beat outlays. Surpluses are the only thing that retires debt.
How many budget years the two totals above span.
Average rate the government pays, used for the yearly interest bill.
The government owes $660B, a stock measured at this moment rather than a flow measured over a year.
- Net addition to the debt
- $60B
- Average change per year
- $20B
- Yearly interest cost
- $19.8B
- Direction of the debt
- Debt grew
Deficits beat surpluses by $60B, and that whole difference is added to what the government owes.
Spread over the period, the debt moved by $20B a year.
Carrying this debt costs $19.8B a year in interest, which is itself an outlay that feeds the next deficit.
Only a surplus retires debt. A smaller deficit still adds to the stock, which is why the debt can climb in a year the deficit falls.
How to calculate National Debt, step by step
- 1Start from the debt already owed. The opening balance is everything the government borrowed in earlier years and has not repaid.
- 2Add up the deficit years. For each year, outlays minus revenue gives that year's deficit, and every one of them adds to the stock.
- 3Subtract the surplus years. A surplus is the only thing that retires debt, so surpluses come off the total rather than adding to it.
- 4Add the net borrowing to the opening balance. Starting debt plus deficits minus surpluses gives the debt today, a stock measured at a point in time rather than over a year.
- 5Cost the debt out. Multiply the debt by the interest rate the government pays to get the yearly interest bill, which is an outlay in the next budget.
Worked example: National Debt
A government owes $600 billion at the start of a three-year stretch. It runs deficits of $45 billion and $30 billion in the first two years, then a $15 billion surplus in the third. Total deficits are 45 + 30 = $75 billion against $15 billion of surpluses, so the net addition is 75 − 15 = $60 billion. The national debt is now 600 + 60 = $660 billion, which works out to 60 ÷ 3 = $20 billion added per year. At an interest rate of 3% the debt costs 660 × 0.03 = $19.8 billion a year to carry, and that interest is an outlay in the next budget.
National Debt questions
What is the difference between the national debt and the budget deficit?
The deficit is a one-year flow of outlays minus revenue, while the debt is the stock left behind by every past year of borrowing. One year versus all years.
Does a smaller deficit shrink the national debt?
No. Any deficit at all still adds to the stock, so a smaller deficit only means the debt grows more slowly. Only a surplus pays debt down.
Why is the national debt usually quoted as a percent of GDP?
Dividing the debt by nominal GDP compares the borrowing to the income that services it, so the share can fall even in a year when the dollar total rises.
Is debt held by the public the same as gross debt?
No. Gross debt also counts what one part of government owes another, such as trust fund holdings, so debt held by the public is the smaller figure economists usually track.
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