AI Growth Alone Won't Solve America's Debt Crisis

US Treasury Secretary Scott Bessent is banking on an AI-driven economic boom to help the country escape its growing debt burden. With the national debt surpassing $40 trillion, Bessent argues that increased productivity, wages, and tax revenues from AI advancements could close the budget deficit and reverse the rising debt-to-GDP ratio. The Federal Reserve Bank of Atlanta estimates real GDP growth at 5.0% annually, while corporate earnings surged by 35% in the second quarter, with profits as a share of GDP at an all-time high.

The challenge, however, lies not in growth but in the tax structure. The US corporate tax rate, lowered to 21% under President Donald Trump, has resulted in historically low corporate tax revenues as a share of federal receipts and GDP. The One Big Beautiful Bill Act (OBBBA) is expected to widen budget deficits and increase debt-to-GDP levels, according to the Congressional Budget Office (CBO).

Options to address the issue include tax hikes or a job boom. The 1990s dotcom boom benefited from tax hikes under President Bill Clinton, which helped reduce the debt-to-GDP ratio. However, the current administration is unlikely to raise taxes, with Trump proposing a $5,000 check for every US adult if Republicans retain control in the midterm elections. Job growth remains tepid, averaging just 41,000 monthly over the past year, far below the 200,000+ monthly growth seen in the 1990s.

While there is cautious optimism that AI could drive a productivity boom similar to the 1990s, the potential for AI to replace human activity raises concerns about shrinking income and payroll tax revenues. Even with strong growth, the fiscal outlook is expected to deteriorate further, with rising interest rates making it even harder to curb the debt-to-GDP trajectory. House Budget Chairman Jodey Arrington argues that growth alone cannot resolve the $2 trillion annual deficit and $40 trillion national debt.