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Each year, the Congressional Budget Office (CBO) releases a long-term projection of the budget outlook. These projections of the primary (or noninterest) deficit when measured as a percentage of gross domestic product (GDP) have declined each year of the Biden administration. The CBO nonetheless projects that those primary deficits will remain high enough to lead to debt that rises indefinitely as a percentage of GDP. This long-term growth in the debt ratio is due entirely to the Bush tax cuts and their bipartisan extension. Under current projections, stabilizing the debt would require the primary deficit to be, on average, 2.1 percentage points of GDP lower each year for the next 30 years.
At the end of 2025, large portions of the Trump tax cuts are set to expire. These cuts disproportionately reduce taxes for rich households and wealthy heirs. If Congress were to permanently extend the expiring provisions, that would significantly increase the projected primary deficit and thus increase the upward pressure on the debt ratio by more than 50 percent.
Permanently extending the Trump tax cuts would dramatically increase the debt ratio
The fiscal gap measures the average amount of primary deficit reduction required to ensure the debt ratio at the end of any specified budget window is no larger than it was at the beginning of that budget window. Using the CBO’s most recent projection, from March 2024, the fiscal gap is 2.1 percent of GDP.* In other words, primary deficits would have to be reduced by an average of 2.1 percentage points of GDP each year over the next 30 years for net debt in 2054 to equal its current level as a percentage of GDP.**
The fiscal gap can be thought of as the upward pressure on the ratio of debt to GDP. This amount of upward pressure will lead debt net of financial assets to rise 80 percentage points of GDP over the next 30 years.
Permanently extending the Trump tax cuts would increase the fiscal gap to 3.3 percent of GDP—a 54 percent increase in the fiscal gap—leading to an additional increase of 36 percentage points of GDP in the debt ratio and pushing debt above 200 percent of GDP.*** In other words, permanently extending the Trump tax cuts would make stabilizing debt as a percentage of GDP 54 percent harder.
Conclusion
A series of tax cuts that disproportionately benefited the rich moved the United States from having an indefinitely declining debt ratio to having an indefinitely increasing one. The 2025 expiration of large portions of the Trump tax cuts is now the largest unknown in the fiscal space.
Congress should not double down on failed tax policies that would disproportionately cut taxes for wealthy households. The 2025 expiration of large portions of the Trump tax cuts presents an opportunity for Congress to create a more equitable tax system and raise revenue to invest in the well-being of American families and communities. Policymakers should ensure that the wealthy and corporations pay their share, especially by paring back some of the previously enacted corporate cuts.
The authors would like to thank Jean Ross, Brendan Duke, Madeline Shepherd, and Emily Gee for their helpful suggestions.
* Technically, the fiscal gap is the present value (values presented in 2024 dollars) of the excess debt—the amount by which the debt ratio is projected to rise over the next 30 years—divided by the present value of GDP over that period. Present values, calculated using projected Treasury interest rates on newly issued debt, automatically account for the reduction in projected interest costs that occur naturally when projected primary deficits are reduced.
** Because the fiscal gap is measured on a net present value basis, it shows the discounted amount of primary deficit reduction necessary over the time period. It could therefore have the same amount each year, more upfront and less later, less upfront and more later, or a varying amount.
*** Under baseline, the fiscal gap is 2.13 percent of GDP. If the Trump tax cuts are permanently extended, the fiscal gap would rise to 3.29 percent of GDP.
Methodology
Long-term debt projections were made from a slightly adjusted version of the CBO’s March 2024 long-term budget outlook. The Center for American Progress authors have incorporated the budget side deals that Congress used in enacting fiscal year 2024 appropriations and that they assume will be used in enacting fiscal year 2025 appropriations; the CBO did not assume adherence to these side deals and so assumed lower appropriations than intended by those who negotiated the deals. The authors’ adjusted projection also sets disaster-related funding to match historical averages as a percentage of GDP, and it removes the extrapolation of any other emergency funding (with the exception of emergency-designated money that is intended to fund ongoing base operations). This analysis uses net debt (government debt net of offsetting financial assets held by the government) because that is the measure of debt that grows each year by the amount of the total deficit. Other measures of debt are not consistent with measured deficits.