This may be the maximum level of U.S. debt that’s sustainable before interest payments trigger a default crisis that even steep tax hikes can’t fix

Soaring U.S. debt and projections that put it at astronomical levels in the coming years have set off increasing panic, though the precise level that sparks a crisis is unknown. But the Penn Wharton Budget Model may have an answer: more than 210% of GDP. Above that “outer bound” threshold, there’s no feasible tax on labor income that can finance interest payments on U.S. debt at returns acceptable to investors, PWBM warned in a report Thursday. According to PWBM, the outer bound of federal debt is the solvency limit, beyond which defaulting on either Treasury debt or pay-as-you-go transfers like Social Security becomes a near certainty on an inflation-adjusted basis. The debt-to-GDP ratio is about 100% today, and forecasts from the Congressional Budget Office see it hitting 175% by 2056—suggesting 210% is decades away on its current trajectory. But depending on how much healthcare costs rise and boost Medicare spending, that threshold could come much sooner. The U.S. has 25 more years in a lower-growth scenario, 22 years with medium growth, and 19 years with higher growth, PWBM estimated. But even that may downplay the risk. “Under the historical growth rate of healthcare costs, there is a 25% chance of hitting the debt maximum in 14 years,” it added. Fixing federal finances before it’s too late would require a permanent tax hike of about 15 percentage points on all labor income, the report said, meaning there would no longer be caps that exempt income above a certain level. Other factors could also affect these calculations, such as higher interest rates, a smaller tax base, and labor-supply responses. Rising debt would inflict economic costs, like weaker wages, slower GDP growth, and less consumption. Capital also becomes scarcer as debt sucks up money that would otherwise go to more productive investments. Meanwhile, sustained tariffs that reduce the inflow of international capital could shorten U.S. leeway by two to four years