Is a fiscal tipping point looming? Key challenges facing the US in the coming years

Under the current legal framework, US national debt is rising inexorably. Against this backdrop, Donald Trump seeks to enact permanent tax cuts (Big Beautiful Bill Act). Historical experience shows that tax relief does not lead to sufficiently high economic growth in the long term to offset the loss in revenue. As a result, there is a risk that debt levels could spiral out of control in the medium term. Our simulations indicate that even slight increases in effective interest rates or moderate rises in the primary deficit would disproportionately raise the debt burden. Without countermeasures, the debt-to-GDP ratio could climb to between 150 and 170% over the next ten years. Ultimately, it is impossible to determine precisely how much debt sustainability can be borne, or when sentiment might shift. Historically, the tipping point often occurs when investors reassess risks. Such a development would also have significant implications for the euro area.

Is a fiscal tipping point looming? Key challenges facing the US in the coming years(PDF, 359 KB, accessible)

Press release