Senate tweaks to Trump tax bill seen adding to US debt in line with House plan

By Davide Barbuscia

NEW YORK (Reuters) -U.S. Senate Republicans’ proposed changes to President Donald Trump’s sweeping tax-cut and spending bill are expected to push U.S. debt levels higher, roughly in line with projections from the House-passed version, analysts said on Tuesday.

Senate Republicans on Monday unveiled proposed changes to the bill the House of Representatives passed last month. The proposals, subject to ongoing negotiations, would make some business-related tax breaks permanent while making the deduction for state and local income taxes more limited.

“The fiscal effects of the Senate’s legislation as it currently stands look likely to be similar over the next few years to what the House passed,” Alec Phillips, an analyst at Goldman Sachs, wrote in a note on Tuesday. The proposals will likely add “at least a few hundred billion dollars” to the estimated 10-year cost of the legislation, he added.

The House-passed legislation would add $2.4 trillion to U.S. government debt over the next 10 years, or $3 trillion if interest costs are taken into account, the nonpartisan Committee for a Responsible Federal Budget estimated earlier this month. The cost would reach $5 trillion over a decade if policymakers extend temporary provisions, the committee has said.

No formal cost estimates by the Joint Committee on Taxation, a nonpartisan committee of the U.S. Congress, and by the nonpartisan Congressional Budget Office have been released since the Senate proposals.

Concerns over the fiscal impact of the bill have been a key driver of the U.S. bond market in recent weeks, as a meaningful increase to the $36 trillion U.S. debt pile could push Treasury yields higher due to more sizeable government debt sales.

“A key contributor to the bond-bearish narrative at the moment is the GOP’s (Grand Old Party) budget bill,” BMO Capital Markets analysts said in a note on Tuesday.

The core of the bill remains similar, they said, as it would extend the bulk of 2017 tax cuts expiring at the end of this year and eliminate taxes on Social Security, overtime and tips.

“At the end of the day, there will still be a significant increase in the deficit that the Treasury Department will be tasked with funding,” the BMO analysts said.

(Reporting by Davide Barbuscia; Editing by Mark Porter)