Treasury Secretary nominee Scott Bessent’s goal of reducing the federal budget deficit to 3% of gross domestic product by 2028 is a sensible aspiration. Achieving it will be difficult. The Congressional Budget Office projects the deficit will be 6% of GDP in 2028. President-elect Trump’s policies could push it to 8%. To meet the 3% goal, Mr. Trump would need to abandon some of his campaign proposals, as newly elected presidents have done before, and add trillions in new savings.
The debt is on an unsustainable trajectory. In a new paper for the Aspen Economic Strategy Group, I analyze six possible baseline scenarios with varying assumptions about interest rates, productivity growth and the expiration of tax cuts. In every scenario, the debt continues to rise as a share of the economy; only the rate of increase differs. This upward trend will likely put further pressure on long-term interest rates, which have already risen following Mr. Trump’s re-election. Higher rates dampen investment, increase mortgage costs for families, and heighten fiscal risks.
Lowering the debt as a share of the economy will require balancing the primary budget, meaning the budget excluding interest payments. The 3% overall deficit target goes a bit further than this. It’s ambitious. But is it achievable?
Mr. Bessent is counting on faster economic growth. He’s hoping the Trump administration will achieve real GDP growth of 3%. While desirable, this isn’t a realistic basis for fiscal planning. The economy grew at around 3% during Mr. Trump’s first term—until the pandemic struck—but much of this growth was above potential, driven by a plunge in the unemployment rate. With the economy now at full employment, that source of growth is no longer available.
The economy has also grown at around 3% under President Biden, but this pace is unlikely to continue. The growth was fueled by a surge in immigration and a rebound in productivity following the pandemic.
Both the CBO and the Federal Open Market Committee project that the longer-run growth rate will be 1.8%. These forecasts are based on the assumption that productivity growth will continue at its current pace and that demographic headwinds will slow job growth. If Mr. Trump advances his growth-friendly policies such as deregulation and shelves his growth-killing policies such as tariffs and mass deportations, the U.S. economy could experience a modest boost in growth. But even in the best-case scenario, no credible forecaster would predict a return to sustained 3% growth.
And while the CBO’s growth assumptions could be overly pessimistic, its interest-rate projections are almost certainly far too optimistic. The CBO forecasts that interest rates will decline through 2028, with the federal-funds rate at 3% and the 10-year Treasury at 3.7%—both about 75 basis points below current market expectations. Efforts to boost growth through increased demand, investment or productivity would push rates even higher.
Clearly, Mr. Bessent can’t count on the economy to solve the deficit problem. Neither can he count on Mr. Trump’s campaign proposals. The Committee for a Responsible Federal Budget estimates that Mr. Trump’s proposed tax cuts and spending increases total about $10 trillion, far exceeding the $4 trillion in savings from tariff revenue and spending cuts. The Department of Government Efficiency is likely to suffer the same disappointing fate as previous efforts to tackle fraud, waste and abuse.
Mr. Trump’s policies collectively would push the deficit to at least 8% of GDP by 2028, exceeding 10% by the decade’s end. This trajectory risks triggering a significant Treasury market reaction, exacerbating deficits.
To avoid this, the Trump administration should take two steps. First, it should adopt the PAYGO+ proposal recommended by Maya MacGuineas of the Committee for a Responsible Federal Budget. The current pay-as-you-go rule merely requires Congress to match new spending or tax cuts with savings of equivalent size. This new proposal would go further, requiring the savings to exceed the cost so that all laws would include net deficit reduction. This wouldn’t solve the deficit in one grand bargain but would set up a multiyear process for digging the economy out of the hole.
Second, the Trump administration should secure the long-term solvency of Social Security and Medicare’s Hospital Insurance trust funds. These funds are projected to be exhausted within a decade, necessitating tax increases and spending cuts to ensure their sustainability.
I’m under no illusion that these measures will be implemented in the next two years. But if Mr. Trump’s policies drive mortgage rates higher, it may create a greater bipartisan appetite for deficit reduction. By then these steps will be even more critical—and more challenging.
Mr. Furman, a professor of the practice of economic policy at Harvard, was chairman of the White House Council of Economic Advisers, 2013-17.
