The cost of Trump's tax reform bill is high! CBO estimates it could increase federal debt by $2.8 trillion over ten years

According to the Zhitong Finance APP, a recent assessment jointly released by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) shows that if Trump's spending and tax reform bill is ultimately passed and implemented, it will increase federal debt by $2.8 trillion over the next decade.

Previously, the CBO made a preliminary assessment excluding macroeconomic impacts, estimating that the bill would increase federal debt by $2.4 trillion between 2025 and 2034. The latest version incorporates economic growth and interest rate changes, resulting in a higher budget deficit estimate.

Specifically, the CBO expects the bill to drive real GDP growth by 0.5 percentage points over the next decade, but it will also raise the 10-year U.S. Treasury yield by 0.14 percentage points. The increase in borrowing costs due to rising interest rates outweighs the increase in tax revenue from economic growth, thereby exacerbating the fiscal deficit.

After including estimates of the government's new borrowing needs, the CBO projects that the bill will increase publicly held federal debt by $3.3 trillion before 2034, with the debt-to-GDP ratio rising to 124%, up from the current baseline forecast of 117%.

The White House has not yet responded to the CBO's assessment. Previously, White House officials stated that there were issues with the CBO's calculation methods and claimed that the bill would help reduce the deficit. Stephen Miran, chairman of the White House Council of Economic Advisers, downplayed the fiscal impact in a television interview, stating that "the reaction to the CBO's estimates is overblown."

The release of the CBO budget report comes at a critical time as the Senate weighs its own version of the bill. This version continues the personal tax cuts introduced by Trump during his first term in 2017, while adding several new tax reduction provisions, including the exemption of tips and overtime pay from taxation.

The House of Representatives passed the bill in May by a narrow margin. Fiscal conservative lawmakers have expressed concerns about the cost of the bill, while moderate Republicans from Democratic-supporting states have called for a significant increase in the state and local tax (SALT) deduction cap.

The Senate Finance Committee released its version of the tax provisions and some cuts to Medicaid on Monday. The Senate version will permanently retain policies such as corporate R&D expense deductions, interest expense deductions, and full asset depreciation deductions.

However, the Senate currently retains a $10,000 SALT deduction cap, far below the $40,000 cap passed by the House, prompting strong opposition from Republicans supporting SALT reform. The Senate has stated that the deduction cap is still under negotiation.

Considering the overall opposition from Democratic lawmakers, Republicans in both the House and Senate can afford to lose at most three votes to potentially push the bill through. Congressional leaders have stated that their goal is to send the bill to Trump for signing before the July 4th Independence Day.

Additionally, the U.S. Treasury and CBO estimate that the federal government may reach its debt ceiling as early as August or September. This legislation is also seen as part of raising the debt ceiling, making the end of July the de facto legislative deadline.

It is worth noting that the current House version is viewed by many analysts as the "most prudent" fiscal version likely to pass Congress. In contrast, the Senate plans to use the so-called "Current Policy Baseline" as the budget assessment standard, assuming that the 2017 tax cuts have been permanently enacted Although this practice does not change the actual fiscal impact, it will obscure the true cost of the legislation, thereby reserving space for larger-scale tax cuts