U.S. Budget Deficit Concerns Replace Tariff Worries

U.S. Budget Deficit Concerns Replace Tariff Worries

Why in News ?

Amid easing tariff tensions, the U.S. is witnessing renewed anxiety over its soaring fiscal deficit and debt burden, with projections showing rising deficits and strained revenue, triggering debates around tax cuts, spending reductions, and a looming debt ceiling crisis.

Rising Fiscal Deficit and Debt Concerns:

• The U.S. is facing an unprecedented fiscal strain, with the national debt touching $36.2 trillion.
• Extension of Trump-era tax cuts could cost $3.72 trillion over 10 years.
• Morgan Stanley projects the fiscal deficit to reach 1% of GDP in 2026, up from 6.7%.
• Even with proposed $500 billion DOGE cuts and $300 billion tariffs, the deficit remains around $1.2 trillion.

Policy Debates and Political Tensions

• Republicans have begun debating budget and tax policy amid pressure to extend tax reliefs.
• Possible cuts in housing, education, and medical research are being discussed to meet a $163 billion spending cut target.
• There’s speculation of raising the top tax rate to 40%, though Trump expressed mixed support.

• The plan also includes raising the debt ceiling by $4 trillion, with a warning from Treasury Secretary to act before mid-July.

Market Reactions and Historical Warnings

• Treasury yields have surged to 47%, reflecting investor nervousness.
• Term premium is at a 10-year high, indicating discomfort with long-term debt.
• The CBO projectsS. debt to hit 120% of GDP in 10 years, 156% by 2055.
• Historian Niall Ferguson warns that historically, empires declined when debt service exceeded military spending—a point the U.S. crossed in 2023.