On Sunday, a major U.S. congressional committee approved President Donald Trump’s new tax cut bill that could pass the House later this week.

The bill expanded Trump's 2017 tax cuts and could increase $5 trillion in national debt, adding to Moody's concerns after lowering its U.S. credit rating on Friday, citing concerns about US $36 trillion in debt.

The United States has the highest number of Treasury bonds and faces growing concerns about its long-term fiscal stability.

What is U.S. debt?

The debt is just the total amount the U.S. government attributes to its lenders, which currently totals $36.2 trillion. This accounts for 122% of the country's annual economic output or gross domestic product (GDP), increasing by about $1 trillion every three months.

The highest debt-to-GDP ratio was during the 2020 pandemic, when the ratio reached 133%. The United States is one of the top ten countries in the world with the highest debt-to-GDP ratio.

What is the debt ceiling and why does it keep increasing?

It creates a deficit when the government spends more than it collects.

To address this deficit, the government borrowed more money. To ensure borrowing is bound by legislative approval, Congress limits existing obligations such as social security, health care and defense on how much money the government can borrow. This limit is called the debt ceiling.

Once it reaches the ceiling, the government will not be able to borrow money unless Congress proposes or suspends restrictions. Since 1960, Congress has raised, suspended or changed the terms of the 78-time debt ceiling, allowing the United States to borrow more money.

Federal deficits under different presidents

The federal deficit is that the government spends much more than the money spent in a year. A federal surplus will mean that the U.S. brings more money than it spends.

The deficit grew dramatically during Trump’s first term, especially in 2020 during the 1920 pandemic, when the government spent a lot while taxes fell due to unemployment. That year, the deficit reached nearly 15% (GDP) of the entire economy.

Under former President Bill Clinton, there is a federal surplus – a good result of economic conditions like the Internet boom, as well as increased tax revenues that increase revenue.

What are Treasury bills, notes and bonds?

When the United States wants to borrow money, it will turn to the federal government's Treasury Department.

To borrow money, the Treasury sold various types of debt securities to investors, such as fiscal bills, Treasury notes and fiscal bonds.

These securities are essentially loans from investors to the U.S. government and promise to repay their interests.

Treasuries have long been considered a safe asset because the risk of the U.S. failing to repay its investors is very low.

At different times, different debt securities mature - this is the time to repay investors.

• Treasury bills (T-Bills) Short term and mature within one year
• Financial notes (t notes) Medium and maturity are between 2 and 10 years
• Bonds (T-Bonds) Long-term and mature for 20 to 30 years.

Who holds U.S. debt?

Three quarters of the $36.2 trillion debt held in the country, about $27.2 trillion, of which:

• $15.16 trillion (42%) Holded by private investors and entities in the United States, mainly in the form of savings bonds, mutual funds and pension funds.
• $7.36 trillion (20%) Holded by internal government agencies and trust foundations.
• $4.63 trillion (13%) Holded by the Federal Reserve.

Individually, Warren Buffett is the largest non-government holder on the U.S. Treasury bill, worth $31.4 billion through his company Berkshire Hathaway.

Foreign investors held the remaining quarter, worth $9.05 trillion (25%).

Over the past 50 years, foreign entities have increased their share of U.S. debt. In 1970, only 5% of overseas investors owned it; today, that number has risen to 25%.

Which countries hold the most foreign debt?

Countries buy U.S. debt because it provides safe, stable investments for their foreign currency reserves, helps manage exchange rates and provides reliable interest income.

Foreign investors hold $9.05 trillion in debt, including:

• Japan holds $11.13 trillion
• The UK holds $779.3 billion, becoming China's second largest non-U.S. Treasury bond holder in March
• China holds $765.4 billion
• Cayman Islands ($45.3 billion) holds a lot of U.S. debt because it's a tax paradise
• Canada (US$426.2 billion)

In response to Trump’s tariffs, both Japan and China said they would use their massive holdings of U.S. Treasury bonds as leverage in trade negotiations with the Trump administration.

Earlier this month, Japanese Treasury Secretary Katsunobu Kato said Japan's massive holdings of U.S. Treasury bonds could be a "card" in trade negotiations.

Similarly, China has been gradually selling the U.S. Treasury for many years. In February, China's U.S. Treasury holdings fell to its lowest level since 2009, reflecting efforts to diversify reserves and sustained trade tensions.

What does high debt in the United States mean for ordinary Americans?

If the U.S. government spends more on repaying debt interest, it may affect budget and public spending, as it is increasingly costly for the government to maintain itself.

The government may raise taxes to generate more income to repay its national debt, thereby increasing the cost to the average person. Increased debt may also lead to higher interest rates, making mortgage, car loan and credit card debt more expensive.