US officials bet AI-driven growth can ease mounting federal debt
US officials are portraying artificial intelligence as a way to deliver rapid economic growth that could ease the country’s debt burden. The article argues that this revives a long-standing Republican promise that tax cuts will generate enough growth to pay for themselves, despite past cuts widening the deficit, and that AI is unlikely to close the current fiscal gap.
Treasury secretary Scott Bessent has set a 3% annual growth goal, while President Donald Trump has said faster growth will help address roughly $40tn in federal debt. The 10-year Treasury yield recently reached its highest level in almost 25 years, as inflation risks and government borrowing weigh on bond markets; interest payments now equal 3.3% of GDP. The Committee for a Responsible Federal Budget estimates that, under stated assumptions, balancing the budget by 2036 would require annual growth of 7.2%, while Trump’s 2025 tax law is projected to add $4.7tn to debt through 2035.
- US leaders are counting on AI-driven growth to ease federal debt.
- Tax-cut promises have historically failed to pay for themselves.
- Balancing the budget by 2036 would require 7.2% annual growth.
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The United States has accumulated roughly $40 trillion in federal debt. Interest payments on this debt now consume a significant portion of the government budget.
US officials argue that rapid economic growth powered by artificial intelligence could help address this. They believe faster growth would expand the tax base, reducing the need for difficult spending cuts or higher taxes.
This approach echoes long-standing proposals that tax cuts can generate enough growth to pay for themselves. Some economists are sceptical of this strategy and question whether AI-driven growth could generate the growth rates needed to address the country's debt problem.
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The strongest fair case each way — we don't pick a winner.
The case for
Artificial intelligence represents an unprecedented technological transformation with genuine potential to accelerate productivity and economic output beyond historical trends. Even if ambitious growth targets prove partially achievable, the resulting increase in tax revenues and reduction in welfare spending would meaningfully improve the fiscal trajectory over time. The growth-focused approach avoids the economic costs of large tax increases or programme cuts whilst offering a path to reducing debt burdens. Dismissing growth as a solution when transformative technology exists represents excessive pessimism about economic potential.
The case against
Decades of experience show that growth projections supporting fiscal policy decisions are consistently optimistic, with previous tax cuts repeatedly failing to generate sufficient growth to offset revenue losses. The Committee for a Responsible Federal Budget's analysis reveals that even with AI advances, closing the fiscal gap would require annual growth rates of 7.2%—substantially above realistic forecasts and historical performance. Relying on speculative technological outcomes to justify current fiscal policy delays necessary spending reforms and revenue adjustments, whilst rising Treasury yields already signal market concern about debt sustainability. Without addressing fiscal imbalances directly, this strategy risks repeating failures that have widened deficits in the past.
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Originally published by The Guardian as “US’s Reagan-era economic promises return as Trump’s AI-fueled growth fantasy”.