- AI could reduce the U.S. annual budget deficit by $2.2 trillion (from 6% to 2% of GDP) by 2036 through productivity gains.
- However, over half of these savings may be offset by five negative side effects: longer lives increasing entitlement costs, tax base shifts favoring lower-taxed capital gains, a weaker labor force reducing tax revenue, higher borrowing costs due to interest rates, and an AI arms race raising defense spending.
- AI-driven healthcare improvements could lower mortality but expand the retirement-age population, increasing Social Security and Medicare expenses.
- Productivity gains may accrue more to asset owners than workers, leading to a narrower tax take despite economic growth.
- AI could reduce labor force participation by 3% (equivalent to 6 million fewer workers by 2036), increasing reliance on government support programs.
- Increased investment in AI infrastructure might raise interest rates, adding around $60 billion to federal debt-service costs by 2036.
- An international AI arms race could add over $350 billion in cumulative defense spending over the next decade.
- Overall, net savings from AI might be closer to $1 trillion or less, emphasizing that AI is not a substitute for long-term fiscal reforms like tax hikes or entitlement cuts.