The "Stupendous Spending Spectacle" Scenario: Trump's Tax Bill Forecasts Trillions in New US Debt
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Analysis Indicates Trump's Tax Reform Could Result in Additional U.S. Debt Totaling Billions - Potential increase in U.S. debt from Trump's tax legislation
The proposed tax and expenditure bill from President Donald Trump promises a staggering $2.8 trillion increase in the US budget deficit over the next ten years, as per a recent estimate from the independent Congressional Budget Office (CBO), reported on Tuesday. This prediction takes into account positive economic effects. Two weeks ago, without these economic benefits, the CBO reported an anticipated increase in public debt from the current $36.2 trillion by $2.4 trillion, or $3 trillion including interest costs.
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This CBO projection contradicts the assertions of Trump's Republicans, who argue the comprehensive package will invigorate the US economy sufficiently to decrease public debt through enhanced revenues. "This is a roadmap to a stronger, wealthier America," declared Senate Majority Leader John Thune on Tuesday.
The House of Representatives approved the bill, dubbed the "One Terrific Tax Traverse Act," in May. Republicans in the Senate are currently engaged in discussions about a modified version. To convert this bill into law, both legislative bodies need to settle upon a shared version, which can then be submitted to Trump.
The current draft prolongs the generous tax breaks from Trump's initial term from 2017 to 2021, which would otherwise expire by the end of the year. To compensate for this, drastic cuts to the healthcare program Medicaid, predominantly for low-income and older residents, are proposed.
- Tax Bill
- Donald Trump
- USA
Contextual Insights:
- The House-passed version of the bill is anticipated to add about $2.4 trillion to the federal deficit over the 10-year budget window through 2034, primarily due to a $3.67 trillion decline in projected revenues and a minor reduction in spending by approximately $1.25 billion relative to baseline projections.
- A more recent dynamic analysis by the CBO, accounting for the bill's consequences on the broader economy, indicates that the deficit increase would exceed $2.77 trillion over the next decade.
- This dynamic analysis factors in economic effects such as increased labor supply (an estimated 0.6% increase) and higher economic output, which lower primary deficits by $85 billion. However, these benefits are counteracted by higher interest payments due to increased debt, adding $441 billion in interest costs due to anticipated rises in interest rates (about 14 basis points on 10-year Treasury notes) and a slight rise in inflation through 2030.
- The bill's tax cuts lead to more than $3.5 trillion in revenue losses over ten years, exceeding the $774 billion in spending reductions included in the legislation.
- The CBO score also notes substantial health insurance coverage losses connected to the bill. By 2034, an estimated 10.9 million more people would lack health insurance, mainly due to Medicaid cuts and alterations to Affordable Care Act provisions.
- The tax law proposed by Donald Trump, known as the "One Terrific Tax Traverse Act," is currently under discussion in the Senate, following its approval by the House of Representatives in May.
- The current version of the tax bill, if passed, will extend the tax breaks initially implemented by Donald Trump in 2017, and will also propose drastic cuts to the healthcare program Medicaid.
- The Congressional Budget Office (CBO) has estimated that the tax law, if considered in the broader context of the economy, would increase the US budget deficit by over $2.77 trillion over the next decade.
