Faster growth is the key to tackling America’s debt crisis

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On March 18, America’s national debt topped $39 trillion, and will exceed 100 percent of GDP later this year on its way to 120 percent of GDP in 2036, according to the Congressional Budget Office.

So is there no hope? Is America doomed to debt-driven financial oblivion?

Maybe not. There is a way out, a strategy that would meaningfully address the nation’s soaring debt, and that would be far easier to enact than balancing federal revenue and spending has proven to be — accelerating economic growth back to the rate at which the U.S. economy grew for 54 years after World War II.

From 1947 through 2000, the U.S. economy grew at an average annual rate of 3.5 percent. Not every year — some years were slower, some faster — but for 54 years the economy grew at an average annual rate of 3.5 percent.

in stark contrast, since 2005, the U.S. economy has grown by 3 percent or better, on a year-over-year basis, only twice — by 3.0 percent in 2018 and by 6.2 percent in 2021, as the economy rebounded from the COVID shutdown. Over the last two decades, annual growth in real GDP has averaged a meager 2 percent.

On May 28, growth in the first quarter of this year was revised downward to just 1.6 percent.

The difference between growth of 2 percent and 3.5 percent may not seem hugely significant, but in an economy the size of the U.S., percentage points matter — especially over time. Over a 25-year period, the difference between 3.5 percent annual growth rather than 2 percent represents an additional $185 trillion in real GDP. Think of the implications for jobs, wages and opportunity.

And for federal tax receipts. Since the end of World War II, the federal government has consistently collected about 17 percent of GDP in tax revenue, regardless of marginal income tax rates. Seventeen percent of $185 trillion is an additional $32 trillion in federal tax revenue over 25 years — 82 percent of America’s current national debt.

Indeed, had the U.S. economy grown at 3.5 percent year over year since 2005 rather than by 2 percent — even with the same federal spending over the period — America’s national debt would currently total about $20 to $22 trillion, 45 percent less than the current $39 trillion because of an additional $12.5 trillion in federal tax revenue generated by the faster growth, together with at least $5 trillion in interest savings on debt that would not have been incurred.

America doesn’t just have a spending problem — it has an economic growth problem.

Some might argue that it is unreasonable to expect the U.S. economy to grow at 3.5 percent on a sustained basis. But it did just that for 54 years after World War II. And it did so as recently as the 1990s — over the entire decade. In fact, from 1995 through 2000, the economy grew at an annual average of 4.3 percent.

So how can America re-accelerate economic growth? Where does growth come from?

Until the mid-20th century, it was widely understood that economic growth comes from growth in one or both of the two principal components of an economy —  the supply of labor and the stock of tools and machinery (“capital intensity”).

But in the late 1950s, American economist Robert Solow demonstrated that, while growth in labor and capital intensity matter, most of economic growth comes from gains in productivity — more output per unit of input — driven by innovation. As businesses and workers become more efficient and productive through innovation, costs fall, profits and incomes rise, demand expands, and economic growth and job creation accelerate. Solow was awarded the Nobel Prize in 1987.

The great significance of Solow’s work is that it not only defined the nature of economic growth, but also identified its principal source. That is because economists have long understood that innovation — particularly major, transformative, or “disruptive” innovation — comes disproportionately from new businesses launched by entrepreneurs.

Indeed, virtually all the transformative innovations that have defined the economic landscape over the past 300 years — the steam engine, the cotton gin, railroads, the telephone and telegraph, electrification, the automobile, the airplane, air conditioning and refrigeration, the computer, development of the Internet, wireless communication, and now countless applications of AI — came from entrepreneurs.

Thriving entrepreneurship requires three key ingredients: great new ideas, funding and skilled talent. Here are three concrete steps policymakers can and should take now to strengthen American entrepreneurship and accelerate economic growth:

Fully fund the CHIPS and Science Act: Originally introduced in the final months of the first Trump administration and signed into law by President Biden on Aug. 9, 2022, the bipartisan measure is the most significant innovation legislation in decades, authorizing billions in research in critical fields such as artificial intelligence, quantum computing, and clean energy, incentivizing semiconductor manufacturing in the U.S., and establishing a network of regional innovation and technology hubs across the country.

Unfortunately, only a fraction of what Congress authorized has been funded. Congress should fund all aspects of the act immediately.

On Dec. 11, 2025, the INVEST Act —  a legislative package comprised of 22 individual bills that would significantly enhance access to capital for new and small businesses — passed the House of Representatives by a strong bipartisan vote of 302-123. The Senate should pass the legislation this year and send to President Trump’s desk.

Enact High-Skilled Immigration Reform: America needs secure borders, but it also needs the world’s most skilled and innovative talent. The U.S. should create a “Startup Visa” to attract and retain foreign-born entrepreneurs who want to launch their businesses in America, as well as a permanent residency card — a “graduation green card” — for foreign-born students who earn an advanced degree in key technical fields from an American college or university, who want to remain in the U.S. following graduation, and who pass a thorough background investigation.

By taking concrete steps to strengthen American entrepreneurship — particularly at the dawn of the AI era — policymakers can accelerate economic growth back to the post-World War II average of 3.5 percent, creating millions of new jobs, expanding opportunity, and generating tens of trillions in additional federal tax receipts needed to significantly reduce America’s national debt.

In other words, America’s debt reduction agenda is the pro-entrepreneurship agenda.

John R. Dearie is the founder and president of the Center for American Entrepreneurship.

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