For decades, tax hawks have warned about the devastating consequences of making an American debt.
But economists say this time is different: the debt is now so great that accumulating more as part of the massive tax reduction of President Donald Trump and the expense bill could put the country on a dangerous path.
“It is as if the house was burning and we were throwing some accelerators instead of a fire extinguisher,” said Kent Smetters, professor of economy and public policies at the University of Pennsylvania Wharton. “Even without this bill, our fiscal house is burning … we are not too big to fail.”
Smetters warns that even without this bill, the United States was already in what he calls a “path of explosive debt”, giving the government perhaps 20 years, at most, to make significant reforms before the consequences become severe.
“If we do not, the ramifications are quite serious. Bond markets can be very, very disciplinary,” said Smetters.
In the center of the current debate is Trump’s radical policy measure, that the projects of the non -partisan Congress Budget (CBO) project would add $ 3.4 billion to the federal deficit in the next 10 years.
President Donald Trump arrives at a rally to start the festive weekend of July 4 at the Iowa state fairgrounds on July 3, 2025, in Des Moines, Iowa.
Scott Olson/Getty Images
The White House disputes the prognosis of the CBO. Trump has argued on social networks that the strongest economic growth, together with tariff income, would compensate for the cost of the bill. “Our country will exploit with mass growth … This bill puts us in a huge prosperity in the new and wonderful golden age of the United States,” Trump wrote.
But many economists do not agree.
The Trump bill is one of the most expensive laws in generations, while reducing the amount of fiscal income that the country places in the coming decades.
Even without this bill, the federal debt is at record levels, approximately equal to the size of the entire US economy. It is estimated that approximately one in four dollars paid in personal income taxes is used for interest on national debt.
The Americans should worry, economists told ABC News, because larger federal deficits mean higher interest rates. That means more expensive mortgages, automobile loans and multiplied by commercial investments that would make workers more productive, according to Douglas Elmendorf, professor at the Harvard Kennedy School and former economist at the Council of Economic Advisors of the White House.
In addition, more debt means less space to respond to crises, they say.
“It’s like a family that takes advantage of your credit cards and then has a problem with the roof of your home. You want to have some space to maneuver in case bad things happen, and we are running out of that room,” said Elmendorf.
The president of the House of Representatives, Mike Johnson, signs the Law of Expenses and Tax Expenses of the President of the United States, Donald Trump, in Capitol Hill in Washington, on July 3, 2025.
Umit Bektas/Reuters
The United States sailed through the financial crisis of 2008 and the Covid-19 pandemic with massive spending of the federal government. That debt never went down, which means that the government will have fewer options in front of another crisis.
The risk of increasing debt levels has felt intangible because the US is the gold standard, so the expectation has been that the world will continue to buy the debt of the United States. As the largest economy in the world and the issuer of the global reserve currency, the United States has long benefited from a strong demand for its debt. But that is not guaranteed: bond markets showed nerves earlier this year. And fear is that investors begin to doubt the force of the US economy and the ability of the United States to pay their debt.
Economists fear that this can start a fatality loop: the debt makes interest rates higher, which makes the debt even larger, which makes it even more difficult for the United States to sell its debt, which is even more global in the debt (hence the fatality loop).
“This bill will increase interest rates and increase the risks of falling into a higher fatality loop than would be otherwise. But economists still do not know when we would reach the fatality loop,” said Elmendorf.
If that scenario develops, the United States could be forced to a painful austerity.
“If we fall into a fatality loop, then the United States has to make dramatic cuts in federal benefit programs such as Social Security and Medicaid and increase taxes.
