Are Tariffs the Solution to America’s Debt Problem? I LPL Financial
Are Tariffs the Solution to America’s Debt Problem?
Lawrence Gillum | Chief Fixed Income Strategist
Last Updated:
As we mentioned in our recent Midyear 2025 Outlook: Pragmatic Optimism, Measured Expectations, we expect bond market action to continue to swing between concerns over slowing economic data (lower yields) and larger debt/deficit dynamics (higher yields). But according to recent analysis from the Congressional Budget Office (CBO), tariff revenue could meaningfully impact both sides of the bond market pendulum, which on net, could be beneficial to the Treasury market.
As noted by the CBO, total government outlays for 2025 are roughly $7 trillion, with 2025 revenue equal to around $5.2 trillion, resulting in a budget deficit of nearly $2 trillion per year (or over 6% of gross domestic product (GDP)). With the recent signing into law of the Republican’s One Big, Beautiful Bill Act, initial estimates suggest, in a best-case scenario, that deficits will continue to run in the 6%-7% range of GDP, suggesting Treasury issuance will need to remain elevated to fill the budget gap. The U.S. government has $37 trillion in total debt outstanding, and that number grows by $1 trillion every six months or so. Bigger budget deficits equal more Treasury issuance, all else equal.