There are 3 ways Donald Trump can reduce the risks from America's soaring debt, Pimco economist says

• The Trump administration promised to reduce the US deficit to 3%.
• How Trump approaches his tax cut plans will matter, a Pimco economist wrote in the Financial Times.
• Trump's government waste cutting program and tariffs could also add billions to the US budget.

Washington's ballooning debt has prompted a lot of fear among economists and market experts, but there are ways Donald Trump's incoming administration can mitigate the impact.

Though the president-elect has pledged policies that could exacerbate issues with the debt and deficit levels, Pimco economist Tiffany Wilding says Trump's exact approach to his policy proposals will be the most important factor.

First, Trump can adjust tax policy in a way that doesn't bring fiscal chaos to Washington.

Trump doesn't have to be overambitious about extending his signature Tax Cuts and Jobs Act beyond next year's expiration, Wilding wrote in an op-ed for The Financial Times. If Trump extends TCJA provisions for a shorter duration than expected, he could avoid overloading Washington's fiscal plate, she noted.

Economists have warned that long-term extensions would reduce a vital source of US revenue at a time when national debt is projected to keep rising. The Congressional Budget Office has said publicly-held debt will hit 122.4% of GDP in 2034, up from 97.3% in 2023.

"The estimated 10-year cost of extending the TCJA is about $4tn, but limiting the extension to four years could reduce that figure to about $1.8tn," Wilding wrote.

Trump could also repeal some clean energy tax credits that were introduced under Joe Biden's Inflation Reduction Act. Doing so could yield $100 billion to $400 billion in national savings over the coming decade. Trump has signaled plans to make changes to the IRA.

Second, Trump's willingness to slash government spending could also get US debt slightly more under control, she said.

Wilding added that Congress should pursue fraud and waste reductions in government spending. Meanwhile, she cited that addressing inefficiencies in healthcare and defense could save Washington $400 billion to $500 billion annually.

"While implementing these reforms may require additional staffing and bipartisan co-operation, even modest efficiency gains of $100bn per year could lead to a $1tn reduction in deficits over a decade," Wilding said.

Before even taking office, Trump has made moves in this direction. The recently-announced Department of Government Efficiency — headed by business leaders Elon Musk and Vivek Ramaswamy — has already floated an idea to ax entire agencies to cut costs.

While it remains to be seen how much power DOGE will have to meet its ambitions, the Commission will benefit from a Republican Congress that could push its aims.

Third, Trump's promise to implement sweeping tariffs on imports has been met with some alarm by economists, but it has the potential to generate additional revenue, Wilding said, estimating that doubling the current rate would garner approximately $400 billion over the next decade,

To be sure, these measures alone won't plug the $1.83 trillion federal deficit, but they could help stabilize it, she said.

"While this isn't a panacea, maybe it's not a terrible outcome relative pretty downbeat US fiscal expectations."