US fiscal folly could create big, beautiful debt spiral

[umbertino]

 

LONDON, July 3 (Reuters) - The U.S. tax and spending bill passed on July 3 is expected to add more than $3 trillion to the country’s deficit over the next decade. If the current debt trajectory continues unabated, it could set off a slow motion debt spiral that could endanger the Federal Reserve’s independence.

 

The sobering long-term debt projections of the Congressional Budget Office may actually understate the likely impact on U.S. debt-to-GDP levels of President Donald Trump's "One Big Beautiful Bill".

 

The CBO based its estimate on the assumption that temporary increases in government spending and tax cuts will sunset at a projected date. But this new budget bill, which extended previous tax cuts and other measures, has shown that this sunset often never arrives.

 

Thus, the long-term projections in the U.S. Treasury’s annual financial report may be more realistic since they assume the current rate of government spending will continue indefinitely. In the Treasury forecast, the U.S. debt-to-GDP ratio is projected to increase to over 200% in 2050 compared to the CBO’s estimate of around 145%.

 

Scarier still, the Treasury forecasts that the U.S. debt-to-GDP ratio will reach 535% by 2100 if current spending plans continue.

 

Proponents of tax cuts argue that they boost GDP growth and thus will slow the rise in debt-to-GDP, but the CBO estimates that the House Bill will only increase real GDP by an average of 0.5% over 10 years or 0.04% per year relative to the CBO’s January 2025 projections. The Tax Foundation estimates that the Senate Bill will boost GDP growth by 1.2% in the “long run”.

 

That hardly makes a difference compared to an expected debt increase totalling almost 10% of GDP..........

 

 

July 4, 20251:02 AM GMT+2

Joachim Klement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

https://www.reuters.com/markets/us/us-fiscal-folly-could-create-big-beautiful-debt-spiral-2025-07-03/