The White House hopes AI will help the US grow its way out of debt. That is a new take on the Reagan-era promise that tax cuts pay for themselves, Eduardo Porter argued in an analysis for The Guardian.
“Even if AI supercharged the economy, its impact on the government’s finances would be muted,” he wrote.
Growth the US has rarely seen
Treasury Secretary Scott Bessent is relying on AI to help deliver 3% annual growth, a rate the US has rarely hit this century, Porter wrote.
The Committee for a Responsible Federal Budget, a fiscal watchdog, has run the numbers. To cut the deficit to 3% of GDP by 2036, the economy would need to grow about 4.4% a year. Balancing the budget would take about 7.2%.
The group’s own estimates of AI’s boost to growth are far smaller. The Congressional Budget Office expects AI to add about 0.1 percentage points a year.
Winners don’t pay as much tax
Porter argues that AI would shift income from workers to the owners of capital. In the US, capital is taxed at about half the rate of labour, so the government would collect less from the same growth.
The AI boom also competes with the government for investors’ money. Tech giants are borrowing heavily to build data centres, as US debt passed 100% of GDP.
The payback problem
Big Tech also needs AI to pay off. Economists Jared Bernstein and Ryan Cummings estimate the largest cloud firms need $13.1tn to $18.7tn in extra revenue over a decade to justify their spending.
If those targets are missed, Porter wrote, it could make the US debt even harder to finance.
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