Tariffs and OBBBA Fuel a Debt Time Bomb Headed for 2035

Federal debt in the United States has surged by more than $1 trillion in just 48 days, raising concerns over the long-term sustainability of the nation’s fiscal position. According to the latest estimates from the Congressional Budget Office (CBO) and the nonpartisan Committee for a Responsible Federal Budget (CRFB), debt held by the public is projected to increase from 100% of GDP in 2025 to 120% by 2035 under the CRFB Adjusted August 2025 Baseline. This represents a significant escalation in the federal debt burden, exacerbated by the implementation of the One Big Beautiful Bill Act (OBBBA) and recent policy shifts, including new tariffs and regulatory changes. Under an alternative scenario—where legal challenges to tariffs succeed and OBBBA provisions are extended—debt could climb even higher, reaching as much as 134% of GDP by 2035 [1].

The OBBBA, passed by a Republican-controlled Congress in July, has contributed significantly to the increase in projected deficits and debt. The CBO estimates that the act alone will add $4.6 trillion to deficits over the next decade and increase debt by more than 10 percentage points of GDP by 2035 [1]. However, the Trump administration’s aggressive tariff policy has partially offset these costs. Tariff revenues, which have grown substantially due to higher rates on imports from China, Mexico, Canada, and the EU, are expected to reduce deficits by $3.4 trillion through 2035, according to the CRFB. If these tariffs remain in place, deficits will be reduced by nearly $1 trillion compared to CBO’s January 2025 baseline [2].

Despite these offsets, the fiscal outlook remains precarious. The CRFB estimates that total deficits over the next decade will reach $22.7 trillion (6.1% of GDP), with interest payments on the national debt expected to increase from $1 trillion in 2025 to $1.8 trillion in 2035. As a share of the economy, interest costs will rise from 3.2% of GDP in 2025 to 4.1% in 2035. This rapid increase in borrowing costs is driven not only by the growing debt stock but also by rising average interest rates. The 10-year Treasury yield, currently at 4.3%, is above the CBO’s January 2025 projection of 4.0%, and further increases could exacerbate the situation [1].

The implications for U.S. fiscal policy are significant. Analysts warn that without a fiscal adjustment equivalent to 10% of GDP, the supply of government debt could eventually outstrip demand, forcing interest rates to rise. A paper presented at the Jackson Hole symposium by a group of leading economists argued that even a debt-to-GDP ratio of 250% could be sustained without raising interest rates—but only if fiscal consolidation occurs in time. The longer adjustments are delayed, the greater the risk that government debt becomes unsustainable [1].

In the near term, policymakers face a tight window for action. The federal debt currently stands at around $37 trillion, and with ongoing fiscal expansion and elevated interest rates, the path to fiscal sustainability remains uncertain. The CRFB and other analysts are urging lawmakers to pursue comprehensive reforms that would place the budget on a more sustainable trajectory—potentially including a combination of spending reductions, revenue increases, and long-term interest rate management. Without such measures, the trajectory of U.S. debt and deficits is unlikely to improve in the coming decade [1].

Source: [1] An August 2025 Budget Baseline (https://www.crfb.org/blogs/august-2025-budget-baseline) [2] Trump is bringing in enough revenue from tariffs to cut ... (https://fortune.com/2025/08/25/how-much-revenue-deficit-reduction-trump-tariffs-cbo-4-trillion/)