The multi-trillion-dollar question for which no one has a good answer is whether or when excessive U.S. deficit spending will create unmanageable and destructive levels of debt. Given the magnitude of current and projected data on these budget issues, the numbers can be confusing.
For fiscal 2025, the Treasury estimates a federal budget of $7 trillion in outlays and $5.1 trillion in revenues with a $1.9 trillion deficit. The current national debt is about $37 trillion with a year-end GDP estimated at $30.5 trillion. About $30 trillion of that $37 trillion is publicly held.
On the current path, U.S. debt should grow by $22 trillion over the next decade. By 2035, budget outlays are estimated at $10.7 trillion, with $8 trillion in revenues with a $2.7 trillion deficit.
The total national debt would be about $59 trillion with $52 trillion of that held publicly. In 2035, interest payments will double to $1.9 trillion and 17-20 percent of outlays, up from today’s $950 billion interest payments that are 14 percent of outlays.
Of course, it is possible the old adage about “lies, damned lies and statistics” may hold. The Trump administration is betting the country that his One Big Beautiful Bill Act will make America wealthy again.
The combination of tax cuts and tariffs that bring in trillions will supposedly supercharge the economy in a long-term effort to outgrow the national debt.
But those assumptions, if history is relevant, do not work. Despite the popular myth, trickle-down economics and tax cuts simply have not generated the growth needed to reduce deficits.
Tariffs, meanwhile, are consumer taxes and almost certainly will increase inflation. This year, tariffs are estimated to bring in $300 billion, less than 5 percent of the $7 trillion budget and less than one percent of the $37 trillion debt.
One solution to this dilemma is to cut spending. The Department of Government Efficiency intended to make $2 trillion in cuts. Thus far, in its rescission bill, Congress has agreed to $9 billion of its cuts — a mere .45 percent of what was promised. So where could major cuts be applied to close the deficit gaps?
The current budget allocates $4.43 trillion or 63 percent to mandatory programs — largely social security and health care. Discretionary spending, at 25 percent of spending, is divided between $1 trillion for defense and $711 for non-defense. Interest on the debt accounts for $952 billion or 14 percent of spending.
Assuming mandatory programs are untouchable beyond the Medicaid cuts made in the budget bill, closing the deficit means cutting all defense spending and interest payments, or a combination of all interest payments, all non-defense spending and $200 billion from defense.
This is not remotely possible.
Returning to the threshold question of when debt and deficits are no longer sustainable, the Congressional Budget Office estimates that by 2035, the debt to GDP ratio will be about 118 percent.
The Government Accountability Office estimates that this ratio could potentially reach 200 percent a decade later without major fiscal changes.
Both believe that a debt to GDP ratio of 120 percent or higher could be a breaking point, threatening unsustainability. But there is no hard evidence to prove or disprove that speculation.
In all likelihood, the sustainability issue will be determined by the markets. Historically, countries borrowing in their own currencies like the U.S. are often better able to control debt more effectively than those with greater foreign exposure. But should investors lose confidence in U.S. Treasuries, borrowing costs would surge as interest increases would be needed to induce lenders.
And there are at least four other negative consequences that could lead to unsustainability:
- Increased debt could shut down private investment and reduce economic growth.
- Higher interest payments could consume greater shares of the federal budget crowding out other necessary spending and force consideration of cutting mandatory programs that would be politically dangerous.
- Rising inflation and asset bubbles could limit the ability of the Federal Reserve to carry out its two functions of controlling inflation and ensuring minimum unemployment.
- Finally, credit ratings could suffer major downgrades, requiring a spike in bond yields, increasing borrowing costs.
This is a very worrying picture. If Trump’s budget and economic plan work, all should be well. But in the view of many, that is a bad bet.
Plan B is to balance the budget. That has happened only once in 30 years, and not since the turn of the century. And increasing productivity to outgrow the debt is also a panacea — something that has not yet occurred.
Meanwhile, all ideas are welcome and are needed, certainly well before 2035.
Harlan Ullman, Ph.D., is UPI’s Arnaud deBorchgrave Distinguished Columnist, a senior advisor at Washington, D.C.’s Atlantic Council, the chairman of two private companies and the principal author of the doctrine of shock and awe. He and David Richards are authors of a forthcoming book on preventing strategic catastrophe.