Pro-growth policies alone can’t stabilize federal debt

But they can help avoid larger tax hikes and spending cuts, and the need for better research on pro-growth policies is increasingly urgent.

U.S. government debt is at historically high levels and projected to climb even higher. The current path is unsustainable, risking a fiscal crisis while also undermining investor confidence in U.S. debt and limiting the government’s ability to respond to crises and other emerging issues.

Meanwhile, the pace of U.S. economic growth–which is needed to raise living standards and provide for an aging population–has slowed.

As policymakers consider policies to reduce federal deficits and spur economic growth, they might be especially interested in policy changes that could accomplish both goals.

A new analysis from Douglas W. Elmendorf (Harvard Kennedy School), R. Glenn Hubbard (Columbia Business School), and Zachary Liscow (Yale Law School)¹ aims to be realistic about what pro-growth policies can achieve from a budgetary perspective.

What We Learned

To stabilize the debt-to-GDP ratio through productivity growth, we’d need to grow at an unrealistically fast rate. If productivity growth was 0.5 percentage point per year faster than CBO expects throughout the next three decades, then the ratio of debt-to-GDP would be stabilized. These estimates don’t include the effects of the 2025 tax bill now being debated in Congress; if that bill is enacted in the form it passed the House, we’d need even higher rates of productivity growth to stabilize the debt-to-GDP ratio.
Pro-growth policies alone won’t get us there. The authors examine seven policy areas–immigration, housing, the safety net, electricity transmission, R&D, taxes on business investment, and permitting–and find no evidence that, even taken together, they can produce a sustained, large enough increase in productivity growth to offset their potential direct budgetary cost and significantly reduce the deficit.
But while tax hikes and spending cuts will be needed, pro-growth policies could lessen the pain. Some policy changes in those areas would boost economic growth, and some of those changes would do so at a low enough direct budgetary cost that they would lower the trajectory of debt relative to GDP. For example, increasing the immigration of high-skilled workers or relaxing restrictions on housing construction would increase economic growth and lower the trajectory of debt.
Pro-growth regulatory changes are especially promising. Some of these regulatory changes would be deregulatory–for example reforming permitting for infrastructure–and others would strengthen regulation–for example federal intervention to improve electricity transmission. Tax cuts, in contrast, directly widen budget deficits, and evidence suggests that they very rarely have a big enough impact on growth to offset those direct deficit increases.

Policy Takeaways

Uncovering the most effective pro-growth policies is especially urgent as Congress debates fiscal policy changes

The tax bill being debated now will not only significantly add to the federal debt, but doesn’t include some of the best ways to boost growth.

The researchers offer several lessons of their analysis for policymakers moving forward:

Analysts should be realistic about how much additional economic growth could be fostered by pro-growth policy changes. Understating or overstating the effects of a policy change could send us down a fruitless path while undermining confidence in economic analysis over time.
Enacting policies initially in small and reversible ways rather than large and enduring ways gives policymakers a chance to adjust course in response to unexpected developments. Estimates of the effects of policy changes are inherently uncertain, which can justify experimentation and adaptation but does not justify paralysis.
Analysts should explore creative policy changes that make taxes and spending adjust to different extents to changes in economic growth. For example, the existing Social Security benefit formula provides substantial gains to retirees from economic growth, and trimming that feedback would cause increases in growth to hold down debt by more.
Although this paper focuses only on the effects of policies on economic growth and debt, other consequences of policies (such as effects on national security and climate change) will be considered by policymakers, too.
Research is needed to fill knowledge gaps and reveal new solutions. In housing policy, for example, existing research doesn’t offer estimates of the economic and budgetary effects of specific federal policy changes. Research that quantifies the relationships between housing policy, housing construction, and economic growth could uncover new policy solutions.

Related Work

Dynan, Karen, and Douglas Elmendorf. 2025. “Putting US Fiscal Policy on a Sustainable Path.” National Bureau of Economic Research Working Paper 33751.

Changing policies sooner rather than later would put debt on a lower trajectory and thereby increase national savings and provide insurance against adverse developments by expanding fiscal space, protecting against a persistent shortfall in economic growth, and reducing the chance of a fiscal crisis. Yet, the probability of a near-term fiscal crisis is difficult to assess.

Elmendorf, Douglas, Glenn Hubbard, and Heidi Williams. 2025. “Dynamic Scoring: A Progress Report on Why, When, and How.” Brookings Papers on Economic Activity.

By design, official budget estimates for legislative proposals generally exclude effects on labor, capital, productivity, and other macroeconomic outcomes, as well as any feedback from such effects to the federal budget. Policymakers would benefit from knowing the expected sizes of those effects, and advances in research and in the estimating agencies’ tools and experience have made providing estimates of the effects—so-called “dynamic scoring”—more feasible.

Liscow, Zachary. 2025. “Getting Infrastructure Built: The Law and Economics of Permitting.” Journal of Economic Perspectives 39 (1): 151-180.

In the US, permitting is slow, infrastructure is expensive, and environmental outcomes are not particularly good. Reforming the power of the executive branch to decide and its capacity to plan would help.

¹ Douglas Elmendorf served as Director of the Congressional Budget Office from 2009 to 2015. Glenn Hubbard was Chair of the Council of Economic Advisors (CEA) at the White House from 2001 to 2003. Zachary Liscow was the Chief Economist at OMB from 2022 to 2023.