As President Trump and his Republican allies race to renew a set of expiring tax cuts for families and businesses, they are confronting an increasingly urgent fiscal challenge: How to extend these policies at a time when U.S. debt is sky high, and still soaring.
The latest warning arrived Thursday from the Congressional Budget Office, a nonpartisan watchdog that offered a new assessment of the nation’s financial strains: It found the government is borrowing money at a fast and expensive clip, while confronting the rising costs of a rapidly retiring population.
Those factors prompted the C.B.O. to warn that the nation’s borrowing poses “significant risks to the fiscal and economic outlook” of the United States. By 2035, debt held by the public is expected to reach 118 percent of the country’s total economic output, rising from 100 percent this year, according to its new report. The office also projected the economy would grow more slowly, as the labor force thins from age, reduced immigration and lower population growth.
But the assessment is still incomplete, arriving at an unpredictable moment at the start of Mr. Trump’s second term. From his disruptive reimagining of the sprawling federal bureaucracy to his recent tariffs on foreign cars and U.S. allies, the president’s economic policies carry significant ramifications for the federal balance sheet that even the nation’s budget scorekeepers cannot yet tabulate.
The vast uncertainties include the fate of soon-expiring federal tax cuts on families and businesses, which Mr. Trump enacted while in the White House in 2017. The budget analysis released Thursday presumes these policies expire, as planned, helping to improve federal tax revenues and the nation’s overall debt load. But the president seeks to renew and expand the tax cuts as part of a package that could reach into the trillions of dollars.
To defray its cost, Republican lawmakers have started identifying spending cuts and other sources of revenue. But G.O.P. leaders still hope to offset some of the price tag by relying on a special accounting trick, which could make the legislation appear to be free.
Underscoring the fiscal stakes, the C.B.O. projected in a little-noticed analysis last week that a version of this approach — extending Mr. Trump’s existing tax cuts, without any other changes to the budget — could greatly worsen the nation’s debt load and long-term fiscal state.
“Today’s long-term outlook will sort of be the last outlook from the pre-Trump policy era,” said Marc Goldwein, the senior vice president at the Committee for a Responsible Federal Budget, which supports reducing the federal debt. Analyzing the C.B.O. figures, Mr. Goldwein said that the total debt held by the public could reach $138 trillion in 2055.
“From there, we’ll be able to see what the administration does to improve or worsen the long-term outlook,” he added.
The new projections sound only the latest alarm about the nation’s fiscal imbalance. At roughly $36 trillion, and growing, the debt reflects a generation of mismatched spending and revenue moves, including presidents from both parties and a series of costly emergencies, including the coronavirus pandemic.
More urgently, it frames an upcoming battle in Congress over the debt ceiling, the legal limit that the United States may borrow to pay for existing spending. The government could breach that threshold as soon as May, the Congressional Budget Office reported earlier this week.
For fiscal hawks, the fear is that the U.S. debt load could lead to economic instability, particularly as the cost of borrowing becomes more expensive. The longer the problem remains unresolved, the greater the ripple effects, and the harder it may be for policymakers to calibrate federal taxes and spending in a way that does not inflict financial pain on families and businesses.
The dynamics already prompted credit ratings agencies, including Fitch, to downgrade the United States’ rating in recent years. While these firms maintain that U.S. debt is safe, they still have raised alarm that the costs of financing it are growing — while the deepening polarization in Washington complicates any efforts to fix the problem.
On Thursday, the Congressional Budget Office echoed some of those concerns, reporting that the rate at which the United States accumulates debt could carry “far-reaching implications” felt by both the government and its citizens, who could experience higher consumer borrowing costs as well.
It attributed some of the problem to an aging population, as more seniors receive retirement payments from Social Security and health insurance through Medicare. Congressional analysts anticipate that the demand for Social Security may exhaust its trust fund in 2034, threatening seniors’ benefits, while the primary trust fund for Medicare could run out in 2052.
Yet there remains little appetite in Washington for a fight over these social safety net programs. While the Trump administration maintains it does not plan to cut Social Security, Medicare or Medicaid, the president and his allies have attacked the programs in recent weeks as a wellspring of waste, fraud and abuse, and Mr. Musk has derisively referred to Social Security in particular as a “Ponzi scheme” and “the big one to eliminate.”
“If we can eliminate certain forms of waste or improper payments in our budget, that’s a good thing, but it’s simply not sufficient to change the long-run trajectory of the budget,” said Michael A. Peterson, the chief executive of the Peter G. Peterson Foundation, which supports deficit reduction. He said there needed to be new reforms and revenues “in order to put the United States on a more sustainable, fixable path.”
For now, Mr. Trump has pledged to pursue significant cuts to other areas of federal spending, primarily targeting government programs that address climate change, education, health, science and the work force. With the aid of Mr. Musk, the administration has already moved to freeze or cancel billions of dollars in federal aid, while dismissing thousands of federal workers and trying to shutter entire agencies, including the Education Department.
“If they improve the efficiency of the government, that would help on the revenue collection side,” said Phillip Swagel, the director of the C.B.O., during an interview earlier Thursday on CNBC, adding the “volatility can go in the other direction, and change is hard.”
The president is expected to include many spending cuts — and recommend others — as part of his 2026 budget, which the White House is expected to produce this spring. That document is also expected to reflect Mr. Trump’s belief that his widespread, aggressive tariffs could raise new revenue, which could help pay for the nation’s financial obligations and the president’s political agenda, including tax cuts.
Republicans aim to prevent taxes from rising on corporations and most individuals, though Mr. Trump hopes to go further, eliminating taxes on workers’ tips and overtime pay, among other proposals. Some early estimates suggest the full thrust of the president’s economic agenda could ultimately add as much as $15 trillion to the debt over the next decade.
For now, House lawmakers have taken the first steps in the debate: In February, they adopted a budget that calls for $4.5 trillion in tax cuts and a $2 trillion reduction in federal spending over a decade. Once party lawmakers in the chamber strike a compromise with their counterparts in the Senate, Republicans can begin the tough work of advancing the tax package through the fast-track legislative process known as reconciliation.
“We must rein in Washington’s wasteful spending, restore economic freedom, and unleash prosperity in America once again,” Representative Jodey Arrington, a Republican from Texas who leads the House Budget Committee, said in a statement.
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