While AI-driven productivity could significantly reduce the U.S. budget deficit, it won't resolve the issue of fiscal sustainability, even in optimistic scenarios. This conclusion comes from a working paper by the Brookings Institution.

These factors claw back around half of the potential gains. See the paper here: https://t.co/zVcRA4Yr4F

— Ben Harris (@econ_harris) July 1, 2026

According to the Congressional Budget Office's forecast, under current legislation, the national debt could rise to 175% of GDP by 2056.

What the Model Revealed

The study's authors, Ben Harris, Neil R. Mehrotra, and William Overcash, examined four scenarios over a ten-year horizon:

  • traditional productivity shock;
  • worker displacement shock;
  • scenario with reduced mortality and changes in healthcare spending;
  • combined destructive scenario.

In the baseline, "traditional" scenario, the outlook appears almost hopeful: the primary deficit turns into a surplus, the annual deficit decreases by over $2 trillion by 2036, and the deficit-to-GDP ratio drops by nearly 5 percentage points. The logic is straightforward: the economy grows faster, the tax base expands, and the budget receives more revenue.

Dynamics of the overall U.S. deficit under various scenarios. Source: Brookings. Dynamics of the overall U.S. deficit under various scenarios. Source: Brookings.

However, the model begins to "consume" the effect. The authors estimate that AI-specific consequences could take away more than half of the potential improvement.

Why the Effect Diminishes

The authors identified five channels that exert pressure on the budget alongside productivity growth:

  1. Reduced mortality and increased life expectancy raise the number of elderly citizens and spending on age-related social programs.
  2. Worker displacement from the labor market increases the burden on transfer payments and income support programs.
  3. A potential AI arms race could accelerate defense spending.
  4. A shift in the tax base from labor to capital lowers the average tax rate, as capital income is taxed differently than labor income.
  5. Rising neutral rates make borrowing more expensive and increase debt servicing costs.

As a result, the researchers do not view artificial intelligence as a standalone solution to the U.S. debt problem: while output growth may be strong, the net fiscal effect is significantly weaker.

In Fortune, it was noted that Elon Musk previously described the widespread adoption of AI and robotics as nearly the only way to resolve the U.S. debt crisis. However, the Brookings report emphasizes that merely accelerating productivity is insufficient if accompanying obligations also rise.

Moreover, more cautious estimates of AI's impact on the economy remain. According to CEPR, the estimated productivity growth associated with AI was about 0.6% in 2025 and could reach 1.8% in 2026. In finance and high-skilled services, the figure is projected to exceed 2%.

Why This Matters for Markets

If AI accelerates growth but simultaneously raises neutral rates, the cost of money in the U.S. may remain elevated for a longer period than investors expect. This affects Treasury yields and government debt servicing costs: the more expensive borrowing becomes, the greater the pressure on the budget and the higher the market sensitivity to Treasury auctions, inflation, and signals from the Federal Reserve.

Debt servicing costs under various scenarios. Source: Brookings.

For Bitcoin and other risk assets, this scenario implies dependence not only on AI optimism and capital inflows into the tech sector but also on liquidity prices. As yields rise, investors are more likely to reduce positions in volatile assets, making dollar-denominated fixed-income instruments more competitive.

Another channel is related to stablecoins. Their issuers remain significant holders of short-term U.S. Treasury securities, so the trajectory of government debt, rates, and demand for Treasuries is crucial not only for traditional markets but also for crypto infrastructure.

It is worth noting that in June, analysts from the Bank for International Settlements stated that the investment boom surrounding artificial intelligence, which supported the global economy in 2025, is itself becoming a source of macro-financial risks.