Why does the market dislike the tax cut bill? Deutsche Bank: It will add $5 trillion in debt, "Trump has hardly been serious about controlling the deficit."

Trump's tax reform bill will lead to a significant increase in the fiscal deficit in the near term, adding approximately $5 trillion in debt for the United States over the next decade, and even considering tax deferral measures, it is difficult to offset this trend.

Recently, the Joint Committee on Taxation (JCT) provided a preliminary score of the marked version of the House Ways and Means Committee's tax reform bill, which is expected to increase the deficit by $3.8 trillion over the next 10 years, with $2.2 trillion (about 58%) occurring in the first five years. More concerning is that the Committee for a Responsible Federal Budget (CRFB) estimates that if temporary provisions are taken into account, the bill will actually add $5.2 trillion in debt for the United States.

The bill is expected to save $1.9 trillion, most of which ($1.2 trillion) will not be realized until the second half of the 10-year budget window:

• The anticipated savings of $915 billion comes from the personal deduction for state and local taxes, which may decrease in the final legislation due to opposition from Republican lawmakers in high-tax states;
• Additionally, about $560 billion in savings comes from the termination or early phase-out of tax credits related to clean energy;
• Another $116 billion comes from "remedies for unfair foreign taxes."

Brett Ryan from Deutsche Bank pointed out that the JCT's scoring is largely consistent with Deutsche Bank's previous overall deficit assumptions. However, the JCT's scoring did not focus on key elements of the fiscal outlook, such as estimates of tariff revenue and potential increases in spending. Deutsche Bank emphasized:

(During Trump's term) it seems that no serious measures have been taken to control the historically high deficit, which will remain above 6% of GDP in the coming years.

Structural Issues of Front-Loaded Spending and Back-Loaded Savings

Deutsche Bank stated that the uniqueness of this bill lies in the fact that spending and tax cuts are concentrated in the early stages, while offsetting measures are concentrated in the later stages.

According to the bill, about 55% of the total deficit increase ($2.8 trillion) will occur in the first half of the budget window, while only 40% of the offsetting measures ($970 billion) will accumulate during this period. Therefore, 70% of non-interest borrowing will occur in the first five years.

The reason for front-loading tax cuts and spending increases is due to the use of "arbitrary expiration" designs to limit reported costs. Several provisions (including enhanced child tax credits and standard deductions, no taxation on tips and overtime, 100% bonus depreciation for equipment, and the new "MAGA accounts") are scheduled to expire in 2028 or 2029.

At the same time, many offsetting measures will not begin or will be phased in until the later part of the budget window. For example:

• Medicaid work requirements are expected to save $300 billion by 2034, but will not take effect until 2028;
• Supplemental Nutrition Assistance Program (SNAP) state matching fund requirements will also not begin until 2028 Analysts point out that this additional acceleration of short-term borrowing may stimulate inflation and push interest rates far above current levels. If Congress extends the expiration terms and cancels some offsetting measures, this situation may persist. If tax cuts are included as one of the alternative scenarios in the forecast, it will result in the debt/GDP ratio exceeding 200% of GDP in the coming decades.

Morgan Stanley: Fiscal plan leads to deficits, limited economic stimulus

On Wednesday, U.S. assets fell across the board. The simultaneous decline in stocks, bonds, and currencies indicates widespread concerns among global investors about the expanding fiscal deficits of major economies.

Morgan Stanley noted that considering potential tariff revenues as a mitigating factor, the bank expects the deficit to reach 7.1% of GDP in 2026 (up from 6.7% in 2025), an increase of approximately $310 billion year-on-year. Although the bill will lead to higher deficits, it is primarily due to secondary factors (such as record interest expenses and economic slowdown), and therefore, the bill will not provide much policy stimulus in 2026.

The estimates from the Committee for a Responsible Federal Budget (CRFB) are even more pessimistic, believing that the bill will significantly increase the deficit by nearly $600 billion in fiscal year 2027 (the first year the policy is fully effective), or 1.8% of GDP. This will raise the projected total deficit from $1.7 trillion to $2.3 trillion, nearly doubling the underlying deficit (excluding interest).

However, Morgan Stanley pointed out that most of the content of this Trump tax reform bill is merely a continuation of the tax reduction policies from the Trump 1.0 era. Therefore, if the bill fails to pass, it would amount to a significant tax increase, which, while reducing the budget deficit, would immediately trigger an economic recession as it would translate into a massive fiscal headwind.