While the economy is growing, US debt is mounting, and this is causing some concern for economists. Federal debt could be double the size of the economy within 30 years if tax cuts are extended and spending continues at its current pace.

The Tax reforms introduced by President Donald Trump early in his presidency are doing wonders for the economy, particularly due to lower corporate tax rates. Most income earners across the spectrum are also benefiting, with a reduction in income taxes creating a double gain when combined with recent wage increases.

Current US Debt Would Mount in the Long Term

Currently, US debt equates to 78% of GDP. While the economy and GDP are steadily growing, government spending means that the debt is increasing at a disproportionate rate. The highest historical record of Federal debt is 106% of GDP. If tax cuts are extended, as some economists predict, then the debt could be as high as 210% of GDP by the year 2048.

President Trump has spoken extensively about reducing the budget deficit, but this has so far been difficult to achieve. The White House Budget Office recently announced in a report to Congress that the deficit will be as high as $1.1T in the next fiscal year. In the previous year, the deficit was just $666B.

Tax cuts can stimulate consumer spending and economic growth, and the administration says that they will create long term revenue increases, despite them being costly for the government today.

The White House is Still Banking on Long Term Gains

In July, Larry Kudlow, the economic adviser to the White House, said that the administration would continue with growth measures to help the US economy maintain its expansion. The White House believes 4% GDP growth is possible soon, with 5% or better being the long-term goal.

Different aspects of the economy and fiscal policy can be difficult to hold together in context, because growth in one area can lead to deficits in others (such as in national debt and government budget). This is a balancing act that every administration needs to manage, and investors will need to be aware that continued economic growth policies may come at a cost to US debt.