“There is a lot of optimism around that we could see potentially much stronger productivity gains and if we do, that might, if not bail us out of our fiscal problems, certainly make them a lot easier,” Zandi said on a recent Moody’s Analytics podcast episode.
‘You stop digging’
In July, the Brookings Institution published an analysis on the possible effect that AI-fueled economic growth will have on the national debt. Under an optimistic scenario in which the U.S. grows similar to the dot-com boom of the late 1990s, economic growth would also lead to a surge in tax revenue from more businesses and corporations that shrinks the deficit over time.
“We get down to around zero primary deficits after six or seven years,” Ben Harris, the director of economic studies at the Brookings Institution said on Inside Economics, the Moody’s podcast. The primary deficit refers to the gap between what the government spends and takes in without accounting for interest payments. The U.S. primary deficit stood at $805 billion for the 2025 fiscal year.
“But when you get to zero primary deficits, what you really do is you give your economy and your budget, the opportunity to grow your way out of its mess. Effectively, you stop digging,” Harris said. “If we get a late ‘90s-like boom, six or seven years from now, [it leads to] zero primary deficits. My guess is investors would take some solace in our trajectory. You’d see the 10-year term premium go down. We’re kind of in good shape.”
Zandi said that Goldman Sachs had crunched the numbers on possible labor productivity growth as a result of AI. With worker productivity growth hovering around 2% in the years following the pandemic, Goldman Sachs believes AI-induced growth could climb to 3%, a level similar to the dot-com boom.
“That would be consistent with what Goldman thinks is going to happen here in terms of AI,” he said.
Labor market displacement
One other factor that’s difficult to anticipate is whether AI displaces workers en masse who usually earn wages taxed by the government. Any budgetary gains could also be canceled out if there’s another stretch of extraordinary spending from policymakers on fresh tax cuts, a foreign conflict or another national emergency.
The Congressional Budget Office has also weighed in on whether AI will turbocharge worker productivity at a velocity that affects the U.S. government’s finances. It’s projecting that productivity will grow 1.2% on average through the next decade, barely increasing from current levels.
“They are not optimistic about AI’s potential impact,” Harris said.
Joseph Zeballos-Roig is a policy and politics journalist based in Washington D.C with a focus on economics. He is experienced in connecting the significance of events in the capital to the lives of everyday Americans whether its taxes, tariffs, interest rates or federal programs.
