President Trump’s ‘Big Beautiful Bill’ Raises the Fiscal Gap to 2.4 Percent

On July 4, 2025, President Donald Trump signed into law the One Big Beautiful Bill Act.¹ The law will leave about 10 million more people without health coverage and will take food assistance away from millions while simultaneously disproportionately cutting taxes for the richest Americans.² Taken as a whole, this is the largest transfer of wealth from the poor to the rich in a single law in U.S. history. At the same time, the Big Beautiful Bill (BBB) increases deficits by $3.4 trillion over the coming decade.³ Before the law was enacted, stabilizing the debt net of financial assets as a percentage at its current level of roughly 93 percent would have required reducing primary, or noninterest, deficits by, on average, 1.64 percentage points of gross domestic product (GDP) each year for the next 30 years. As enacted, the BBB increased that to 2.39 percentage points, an increase of nearly 50 percent. And if all provisions that are set to expire in the future—such as No Tax on Tips and the increase in funding for U.S. Immigration and Customs Enforcement (ICE)—were made permanent, the fiscal gap would rise further to 2.89, a 76 percent increase. Such a trajectory is likely to raise interest rates, making borrowing more expensive for American households. It also requires a level of debt service that could crowd out spending of public goods, from infrastructure to education programs.

Budget analysts often cite the fiscal gap as a metric to quantify the extent of primary deficit reduction necessary to stabilize the debt ratio. The fiscal gap measures the average amount of primary fiscal consolidation required to ensure that the debt ratio at the end of any specified budget window is no larger than it was at the beginning of that budget window. In this regard, the fiscal gap can be considered the amount of upward pressure on the debt-to-GDP ratio.*

Using the Congressional Budget Office’s (CBO) most recent projection from March 2025, the fiscal gap was 1.64 percent of GDP before President Trump took office for his second term and began his agenda. The most recent projection is consistent with 10-year assumptions in the CBO’s January 2025 budget outlook that reflect economic, technical, and budgetary assumptions made just before President Trump took office and are consistent with laws in place before the start of the administration. This means that, before the administration began carrying out its agenda, primary deficits would have needed to be reduced by an average of 1.64 percentage points of GDP each year over the next 30 years for net debt in 2055 to equal its current level as a percentage of GDP.

The BBB increased the fiscal gap by 0.75 percentage points, up to 2.39 percent, a 45 percent increase. In other words, enacting the BBB increased upward pressure on the debt trajectory by roughly 50 percent. However, many of the provisions of the law are temporary, such as No Tax on Tips and No Tax on Overtime, as well as the spending increases for the Department of Defense and for ICE—with most set to expire after 2028.⁴ If a future Congress made the temporary tax provisions permanent, the fiscal gap would instead rise 1.09 percentage points, up to 2.73 percent, a 66 percent increase. And if both the temporary tax provisions and the temporary spending provisions were made permanent, the fiscal gap would instead rise by 1.25 percentage points, up to 2.89 percent, a 76 percent increase.

Potentially offsetting some but not all of the deficit impacts of the BBB is the Trump administration’s sweeping new tariff regime, first introduced in April 2025.⁵ Tariffs are taxes on goods—or on some component parts of goods—that are imported to the United States. U.S. entities pay the tariffs, thus raising the cost of goods by the amount of the tariff. Research has found that most of these increased costs are borne by American businesses and consumers.⁶ The increased tax revenues from the Trump administration’s tariffs are bringing in additional revenues to the United States at the cost of lower inflation-adjusted incomes for Americans. If the tariffs that are in effect as of the publication date of this issue brief were left in place for the next 30 years—currently at an effective tariff rate of 16.9 percent, the highest since 1932—they would subtract 0.63 percentage points from the fiscal gap.⁷ In other words, tariffs, if they are not used to pay for other things and if they do not go away, pay for 84 percent of the BBB, but they only pay for 50 percent of the BBB if its temporary provisions are extended. It should be noted that the administration has claimed the tariffs are being used to offset many, many different things.

However, if lower tariff levels are negotiated, if the U.S. Supreme Court strikes down the administration’s country-specific tariffs and they are not replaced under different tariff authorities, or if future presidents remove some or all of these new tariffs, then the revenues generated from tariffs could be substantially lower or could disappear entirely.⁸ (see Figure 1)

The BBB continued the trend this century of large tax cuts that are not paid for, with tax cuts that disproportionately flow to the richest Americans.⁹ Even with the revenues gained from the Trump administration’s tariffs, federal receipts are projected to be fully 3 percentage points of GDP lower than they were at their peak during the Clinton administration. Given today’s GDP, that revenues loss is the equivalent of $940 billion per year. If current revenues were to match the levels in fiscal year 2000 as a percentage of GDP, and from there grow only as real incomes grew into higher tax brackets, debt as a percentage of GDP would be declining indefinitely rather than rising indefinitely.

Importantly, primary spending projections are also lower than projections made before the United States developed a fiscal gap. In other words, while it is true that primary spending has increased, until now it has done so no faster than the rate that the CBO projected—and spending is projected to fall significantly below previous projections. This means spending isn’t responsible for changes in the fiscal outlook. In contrast, revenues have lagged enormously behind projections. The United States used to be on track to raise sufficient revenues for this expected spending eventuality, but then taxes were cut, and now there are insufficient revenues. (see Figure 2)

One consequence of this relentless one-way ratchet on tax policy this century—a tax agenda that invariably cuts taxes on net and continually makes the tax code less progressive—is a weaker connection between economic growth and revenue flows to the U.S. Treasury. Figure 3 plots unemployment rates against revenues as a percentage of GDP by fiscal year. While economic downturns are still highly correlated with fewer jobs and therefore lower revenues, strong economies are less correlated with higher revenues than they were in the past. The figure shows that in recent years, historically low unemployment rates have been associated with relatively low revenues. The weakening of this linkage makes closing fiscal gaps a heavier lift, as the United States can no longer count on growth to have the same deficit-reduction impact as in prior years.

These fiscal issues matter more now than they have in the past because of the greater likelihood of a significant “debt event” and the ensuing pressures on interest rates, as well as the nation’s ability to service its debt and still sufficiently invest in public goods such as infrastructure, education, and workforce training.

The likelihood of a debt event of some magnitude has gone up because of higher debt and worsening economic conditions relative to previous projections. At worst, this means a significant and potentially sudden loss of faith in the quality of U.S. debt, leading to a sharp spike in interest rates, which then likely would cause a debt spiral. At best, it would mean a gradual version of the same dynamic, with interest rates drifting up over time. Because the United States controls the world’s dominant currency and because markets for its debt are large, global, and highly liquid, the United States is not at risk of truly running out of fiscal space. In other words, it is very unlikely that creditors would cease buying U.S. debt. But it is more likely that they demand higher “risk” or “term” premiums, meaning higher rates on U.S. longer-term debt.¹⁰

In any scenario, such higher rates would slow economic activity—thereby lowering wage growth—increase household borrowing costs, and increase the cost to the United States of servicing its past debt, diverting more resources from other productive uses, such as public infrastructure, poverty reduction, education, and workforce training.¹¹ The higher debt also would increase the likelihood of a sudden loss of confidence among lenders, who would then insist that a risk premium be added to the rates they receive on their loans to the government.

Second, if such an event did occur, the adjustment that would be needed in order to get back on a more sustainable path would be historically very large, meaning it would require a significant amount of fiscal consolidation that would be extremely challenging to the current federal budget system, which has grown highly unresponsive to debt concerns.

Of course, fiscal gaps have long been a characteristic of the U.S. debt outlook, along with rising debt-to-GDP ratios. And, of course, the U.S. Treasury has been able to borrow as needed to run the government and service the nation’s rising debt. Up until recently, the rates at which the U.S. government has been borrowing have been quite low; unfortunately, however, that is no longer the case. (see Figure 4)

The fiscal gap is historically large, and the BBB has created more upward pressure on the key metrics of debt sustainability. Near-term structural primary deficits are now the largest since the Reagan era. Interest rates have rebounded upward and may well be understated in the most recent projections. These factors should lead even fiscal doves to be concerned with the nation’s fiscal trajectory.

Even in the scenario with the least new debt, where the temporary provisions of the BBB are allowed to expire on schedule and all the tariffs stay in place at their current level for 30 years, the fiscal gap would still rise to 1.75 percent. Closing the fiscal gap would require $6.5 trillion of primary deficit reduction over 10 years.

Under more plausible fiscal scenarios, the fiscal gap is significantly larger. (see Table 1)

Taken together, the current trajectory appears less sustainable than previous outlooks. In this context, “sustainability” refers to avoiding the debt events described above that would invoke the need to quickly—and painfully—adjust the fiscal path to avoid spiraling debt and quickly rising debt service.

Sustainability economics are driven by a few key variables: the growth rate, the interest rate on the debt, the primary balance, and the starting position of the debt ratio. These variables have been trending in increasingly unfavorable directions.¹²

For example, when the economy’s underlying growth rate stays above the interest rate on the debt (g > r, to use the common terminology), it is easier to generate enough revenues to keep the debt from rising as a percentage of the economy. The government can run a small primary deficit and still keep the debt-to-GDP ratio stable. But because g has exceeded r for many years now—which surely contributed to the bipartisan complacency about debt sustainability—this premium has significantly diminished, more due to higher r than to lower g.¹³ Meanwhile, the primary deficit is also historically large.

Of course, no one can truly know where g, r, and primary balances are headed. The interest rate is particularly hard to forecast, although primary deficit predictions are more reliable because they trace out the implications of the current law and current policy baselines. But as many other formerly dovish budget analysts have pointed out, the risk profile looks more worrisome, meaning that prudent risk management requires the United States to hope for the best but plan for the worst.¹⁴ In this context, that means Congress should maintain “eyes wide open” to the possibility that the current budget trajectory is growing increasingly unsustainable and to begin articulating a specific policy agenda to get on a more sustainable path. That will mean higher revenues.

Importantly, in its push for course correction, Congress should ensure it does not do more harm than good. In working to prevent potential future harm, Congress should not inflict guaranteed harm on the vulnerable through cuts to crucial programs that Americans rely on or shortchange the future through underfunding critical investments.

Congress should seek responsible ways to lower the fiscal gap that do not harm the poorest and do not harm crucial public services on which Americans rely. Irresponsible deficit reduction is significantly worse than doing nothing, but doing nothing is worse than responsible deficit reduction. Congress should look first to undoing some of the many tax cuts, significantly tilted toward the wealthy, that are responsible for the fiscal gap in the first place.¹⁵

* Technically, the fiscal gap is the present value of the excess primary deficits—the primary deficits above that which would leave the debt ratio flat—divided by the present value of GDP over that period. Present values, calculated using projected Treasury interest rates on newly issued debt, automatically account for the reduction in projected interest costs that occur naturally when projected primary deficits are reduced. Because the fiscal gap is measured on a net present value basis, it shows the discounted amount of primary deficit reduction necessary over the time period. The fiscal gap could therefore have the same amount each year, more upfront and less later, less upfront and more later, or a varying amount.

Long-term debt projections were made from a slightly adjusted version of the CBO’s March 2025 long-term budget outlook. The Center for American Progress authors have incorporated the budget side deals that Congress agreed to use in enacting fiscal year 2025 appropriations even though Congress only partially followed its agreement in enacted 2025 appropriations; the CBO did not assume adherence to these side deals and so assumed lower appropriations than intended by those who negotiated the deals. The authors’ adjusted projection also sets disaster-related funding to match historical averages as a percentage of GDP, and it removes the extrapolation of any other emergency funding, except for emergency-designated money that is intended to fund ongoing base operations. This analysis uses net debt—government debt net of offsetting financial assets held by the government—because that is the measure of debt that grows each year by the amount of the total deficit. Other measures of debt are not consistent with measured deficits.

For long-term nominal projections of the BBB as enacted, the authors used estimates provided by the Committee for a Responsible Federal Budget, consistent with its July 15 report.¹⁶ For both 10-year and long-term nominal projections of the BBB’s expiring provisions made permanent, the authors used estimates provided by the Committee for a Responsible Federal Budget, consistent with its July 15 report.¹⁷ The authors used these figures to estimate the impact on the fiscal gap.

For 10-year nominal estimates of the impact of tariffs, the authors used figures provided by the Yale Budget Lab in its January 19 tariffs report.¹⁸ The authors extrapolated the costs through 2055 and used these figures to estimate the impact on the fiscal gap.

The authors would like to thank Corey Husak, Alan Cohen, Ryan Mulholland, Mike Williams, Madeline Shepherd, Lily Roberts, and Emily Gee for helpful thoughts and comments.