Think the national debt is big now? Wait until Trump tax cut extensions hit

Key Takeaways

• Extending President Donald Trump's 2017 tax cuts would push the national debt to more than twice the Gross Domestic Product by 2054, the Congressional Budget Office said in a recent estimate.
• The nation's finances would hit a tipping point into a severe financial crisis if the debt ever got as high as 200% of the GDP, researchers at Wharton estimated in 2023.
• The CBO's estimates assume the tax cuts are extended without a decrease in federal spending to make up for it.
• Republican lawmakers are working on a budget that will extend tax cuts for the next year and cut federal spending, including Medicaid.

According to a recent estimate by the Congressional Budget Office (CBO), extending President Donald Trump’s 2017 tax cuts would push the national debt up to enormous levels by 2054.

If Congress continues to follow through on plans to extend Trump’s tax cuts starting in 2017, without making any other fiscal policy changes, the national debt may balloon over the next thirty years. A new estimate shows that the national debt could reach a level described by some economists as “unsustainable,” at which the government could default on their debts and cause the global financial system’s unraveling.

CBO responded to Congressman David Schweikert’s inquiry in a letter Friday. The TCJA is on track to expire by the end of this year if it is not extended.

CBO estimates that if the tax cuts are not extended, by 2054 the debt to GDP ratio will be 166%. This could make a big difference in the health of our financial system. Wharton School economists estimated that the national debt would reach an irreversible tipping-point in 2023 if the debt to GDP ratio ever reached 200%. The Wharton team estimated that at that level the government would not be able to raise enough taxes to pay their creditors. This could trigger a financial crash that could have repercussions throughout the U.S. economy and the world.

Financial problems could worsen if future interest rates are higher than CBO projections. The researchers estimated that if the interest rates rose by 5 basis points each year until they were one percentage point above the projected levels, then the national debt ballooned to 250%.

Republican lawmakers in the House of Representatives (House) and Senate (Senate) are preparing the budget for the next year. It is expected that the tax cuts will be included, as well Medicaid cuts to offset some of the revenue lost. President Donald Trump has pledged to balance the budget by charging tariffs to U.S. trading partner countries in order offset the loss of income taxes revenue. However, this plan has received a skeptical response from economists.