How President Trump’s plans will impact the US deficit – ING Think

US Fiscal Position and Sustainable Development Goals (SDGs) Analysis

Current Fiscal Status

The United States is currently facing significant fiscal challenges. Despite the borrowing spike during the Covid-19 pandemic (2020-22), government spending continues to exceed tax revenues substantially. The federal deficit stands at 6.7% of GDP, and net government debt, which was 35% of GDP two decades ago, is projected to surpass 100% of GDP in the current fiscal year.

Credit Ratings and Fiscal Policy Implications

Concerns about the US fiscal trajectory have intensified, resulting in the loss of the Triple A credit rating from S&P, Fitch, and Moody’s. President Trump’s One Big Beautiful Bill Act (OBBBA) proposes to extend and expand the 2017 tax cuts, which the Congressional Budget Office (CBO) estimates will reduce tax revenues by $3.7 trillion over the next decade. Proposed spending cuts would save only $1.3 trillion, widening the primary deficit by $2.4 trillion.

Fiscal Impact and Economic Growth

• The OBBBA primarily extends existing tax cuts, generating no additional economic growth beyond current trends.
• Tariffs introduced by the administration generate additional tax revenues independent of OBBBA.
• Efficiency savings from the Department of Government Efficiency (DOGE) are modest, totaling less than $200 billion.

Long-Term Fiscal Outlook and SDG Considerations

Despite these measures, US deficits are expected to remain high, with debt levels continuing to rise. Demographic-related spending increases (0.1-0.2 percentage points of GDP annually) further strain fiscal sustainability. The combined policies may hinder near-term economic growth, risking overly optimistic official deficit and debt projections.

Growth and Investment Challenges

• OBBBA’s additional tax cuts are offset by spending cuts targeting “green” investments and healthcare, potentially undermining SDG 3 (Good Health and Well-being) and SDG 13 (Climate Action).
• Tariffs aim to reshore manufacturing, enhancing supply chain resilience and intellectual property protection, aligning with SDG 9 (Industry, Innovation, and Infrastructure).
• However, tariffs may increase consumer prices and reduce corporate profits, negatively impacting household spending and investment.
• Signs of slowing hiring and investment growth reflect economic and geopolitical uncertainties.

Projected Economic Growth and Fiscal Performance

1. US GDP growth is expected to slow from 2.5% in 2024 to an average of 1.5% during 2025-26, 0.3-0.4 percentage points below official projections.
2. Interest rate trajectories are anticipated to be more cautious.
3. The fiscal outlook is likely to be worse than the Congressional Budget Office’s forecast range, with deficits remaining at or above 6% of GDP throughout the next decade.
4. Debt-to-GDP ratios are projected to increase by approximately 2 percentage points or more annually.

Implications for Sustainable Development Goals

• SDG 8 (Decent Work and Economic Growth): Slower growth and fiscal constraints may limit job creation and economic opportunities.
• SDG 3 (Good Health and Well-being): Spending cuts in healthcare could undermine health outcomes.
• SDG 13 (Climate Action): Reduced support for green investments may hinder climate mitigation efforts.
• SDG 9 (Industry, Innovation, and Infrastructure): Tariffs promoting reshoring align with strengthening industrial capacity and innovation.
• SDG 10 (Reduced Inequalities): Fiscal policies must consider equitable impacts on households affected by tariffs and spending cuts.

Notes

1. Net debt refers to total gross debt excluding holdings by US government entities. As of fiscal year 2024, net public debt was 96.4% of GDP compared to gross debt of 121% of GDP.
2. Fiscal years referenced correspond to US fiscal years (e.g., FY24: October 1, 2023 – September 30, 2024).
3. Primary deficit figures exclude debt interest expenses.

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 8: Decent Work and Economic Growth
   • The article discusses US economic growth projections, fiscal deficits, and government spending policies, which directly relate to promoting sustained, inclusive, and sustainable economic growth.
2. SDG 10: Reduced Inequalities
   • Tax cuts and tariffs impact income distribution and economic inequality, which connects to reducing inequalities within and among countries.
3. SDG 12: Responsible Consumption and Production
   • The mention of tariffs encouraging reshoring manufacturing and supply chain resilience relates to sustainable consumption and production patterns.
4. SDG 16: Peace, Justice and Strong Institutions
   • The fiscal management, government debt, and credit rating issues relate to building effective, accountable institutions and sound fiscal policies.
5. SDG 3: Good Health and Well-being
   • Spending cuts on healthcare mentioned in the article connect to ensuring healthy lives and promoting well-being.
6. SDG 13: Climate Action
   • Spending cuts on “green” investment support relate to climate action and sustainable environmental policies.

2. Specific Targets Under Those SDGs Identified

1. SDG 8: Decent Work and Economic Growth
   • Target 8.1: Sustain per capita economic growth in accordance with national circumstances.
   • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.
2. SDG 10: Reduced Inequalities
   • Target 10.1: Achieve and sustain income growth of the bottom 40% of the population at a rate higher than the national average.
   • Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, to progressively achieve greater equality.
3. SDG 12: Responsible Consumption and Production
   • Target 12.2: Achieve sustainable management and efficient use of natural resources.
   • Target 12.5: Substantially reduce waste generation through prevention, reduction, recycling, and reuse.
4. SDG 16: Peace, Justice and Strong Institutions
   • Target 16.6: Develop effective, accountable, and transparent institutions at all levels.
   • Target 16.7: Ensure responsive, inclusive, participatory, and representative decision-making.
5. SDG 3: Good Health and Well-being
   • Target 3.8: Achieve universal health coverage, including financial risk protection and access to quality essential health-care services.
6. SDG 13: Climate Action
   • Target 13.2: Integrate climate change measures into national policies, strategies, and planning.

3. Indicators Mentioned or Implied to Measure Progress

1. Fiscal Deficit as Percentage of GDP
   • The article states the US federal deficit is running at 6.7% of GDP and projects future deficits, which is an indicator of fiscal sustainability and economic health.
2. Government Debt to GDP Ratio
   • Net government debt is discussed as a percentage of GDP (expected to breach 100%), which measures public debt sustainability.
3. Economic Growth Rate (GDP Growth)
   • Projected GDP growth rates (2.5% in 2024 slowing to 1.5% in 2025-26) are used to assess economic performance.
4. Tax Revenue Levels
   • Tax revenue changes due to tax cuts and tariffs are mentioned, which relate to fiscal policy effectiveness.
5. Credit Ratings
   • Loss of Triple A rating by major agencies (S&P, Fitch, Moody’s) indicates institutional trust and fiscal management quality.
6. Spending on Healthcare and Green Investments
   • Cuts in healthcare and green investment spending imply indicators related to health coverage and climate action investments.

4. Table of SDGs, Targets, and Indicators

Source: think.ing.com