In the first year of his second term, President Trump has tried to radically reshape America’s economy. He has slashed taxes, raised tariffs to their highest levels in almost a century, unilaterally canceled federal spending, pushed down immigration and pressured the Federal Reserve to sharply lower interest rates.
When it comes to the overall federal budget, though, the effect of these dramatic changes has nearly been a wash. The country is still on track to borrow what economists consider an alarming amount of money in the coming years. But the situation, on paper at least, has gotten only somewhat worse, but not significantly, under Mr. Trump’s unorthodox policy mix.
Those were the findings of the Congressional Budget Office, the nonpartisan scorekeeper, in its annual, long-term forecast for the federal budget released on Wednesday. Compared with its projections from January 2025, before Mr. Trump took office, the federal government is now expected to run a $23.1 trillion shortfall over the next nine years, rather than a $21.8 trillion one, a $1.4 trillion wider gap.
The C.B.O. said that the amount of debt held by the public is expected to become much larger than the annual output of the economy, reaching 120 percent of gross domestic product in 2036. That would surpass levels reached in the aftermath of World War II and put the world’s most important economy at risk of a destabilizing debt crisis.
There is reason to expect that the fiscal situation could become even more precarious, despite the fact that the budgetary effects of Mr. Trump’s economic policies appear, for now, to almost cancel one another out.
The most expensive policy change made so far by Republicans and Mr. Trump has been the broad income tax cuts they passed last year. That law, which provided its biggest benefits to the rich as it also cut spending on programs for the poor, came in at a total cost of roughly $4.7 trillion over the next nine years, the C.B.O. said. The biggest source of new money, Mr. Trump’s tariffs, is projected to raise roughly $3 trillion over that same time frame.
In reality, though, the cost of the tax cuts could end up far exceeding the revenue generated by the tariffs. When they passed the tax cuts last year, Republicans took the unprecedented procedural step of locking many of them in permanently, meaning the cuts would require another act of Congress to reverse them, an unlikely event.
Many of Mr. Trump’s tariffs are mired in deep legal and political uncertainty. The Supreme Court could soon throw many of them out. If the tariffs survive the legal challenge or Mr. Trump replaces them with different levies, a future president could, with a stroke of the pen, immediately slash the remaining import taxes.
That would leave the federal government with a far more meager revenue source just as the country confronts the budget crunch created by Social Security, the most expensive federal program. For years, as the population has aged, the amount of money spent on the retirement program has outpaced the amount of tax paid into it by younger working Americans, driving wider deficits.
Social Security’s flagship trust fund, paper savings built up when tax revenues for the programs exceeded costs, is now expected to run out in 2032, a year earlier than previously expected, the C.B.O. said. The exhaustion of the trust fund will force Congress to decide on a new way of financing Social Security to avoid a deep, across-the-board cut to benefits.
At the same time, Mr. Trump’s crackdown on immigration is also putting pressure on America’s fiscal situation, the C.B.O. said. The budget office expects the American population to have 5.3 million fewer people in 2035 than it previously expected, reducing projected tax revenue, with an overall budget hit of roughly $500 billion over that time frame.
The ultimate arbiter of Washington’s spending habits is the bond market, where investors buy and sell the government’s debt. The risk is that investors begin to doubt that the United States will pay back its debts and start demanding higher interest rates, stunting borrowing across the economy. Higher interest rates also increase spending, forcing the government to borrow even more to pay its older debts.
The budget office expects Mr. Trump’s tax cuts to give a short-term boost to the economy, though long-term interest rates are also expected to be higher than it previously forecast.
Andrew Duehren covers tax policy for The Times from Washington.
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