By David Morgan, Bo Erickson and Davide Barbuscia
WASHINGTON (Reuters) -As President Donald Trump’s Republicans push ahead on a sweeping tax-cut and spending bill that nonpartisan analysts say could add $3.3 trillion to the nation’s debt over the next decade, they’re taking a new approach – denying there is anything to worry about.
Instead, they argue that extending and adding to tax cuts signed into law by Trump in 2017 during his first term – which were set to sunset in 2025 to limit their hit to the deficit – will not drive the debt higher.
Independent analysts and investors said the approach, which follows years of growing government debt under both parties, threatens to erode the country’s fiscal health and further sap confidence in financial markets, already shaken by Moody’s move in May to strip the U.S. of its top-tier AAA rating.
The bill, passed by the Senate on Tuesday and which House of Representatives Republican leaders aim to pass later this week, will also raise the federal government’s self-imposed debt ceiling by $5 trillion, averting the risk of a disastrous default on the nation’s $36.2 trillion in debt sometime this summer.
A handful of Republican deficit hawks have said that fact alone undercuts their party’s argument that the bill does not add to the debt.
“They are effectively moving the goal posts and making it much easier to run these incredible deficits ad infinitum,” said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income, which manages bond funds worth around $860 billion as of March. “That should really create concern in the market about these ongoing large budget deficits.”
Democrats – effectively sidelined by a Republican maneuver that bypasses normal chamber rules requiring 60 of the 100 senators to agree on most legislation – have blasted the Republican argument as chicanery.
They say the bill, which would also lift taxes on tips and overtime, and boost spending on the military and border security while cutting spending on Medicaid and food assistance, will disproportionately help the wealthy and burden lower-income Americans.
“It is fakery. The budget numbers are a fraud, but the deficits will be very real. The prospect of a catastrophic debt spiral is very real,” Senator Ron Wyden of Oregon said on the Senate floor on Monday.
‘PROTECTING THEIR WALLETS’
Republican Senate Finance Committee Chairman Mike Crapo argued that extending the 2017 tax cuts will not add to the debt.
“If you don’t raise taxes, you’re not changing the tax code, you’re making it bring in the same revenue that it brought in before,” said Crapo, of Idaho. “You’re not increasing the deficit, you’re protecting their wallets.”
Republicans also called Democrats hypocritical for accusing them of driving the deficit higher, noting that during President Joe Biden’s term the then-Democratic-controlled Congress passed costly legislation using the same fast-track maneuver to circumvent the 60-vote threshold.
Senate Republicans said their current policy accounting approach is necessary to make the tax cuts permanent to provide certainty for businesses and investors, something Trump demanded during the 2024 campaign. Their approach is backed by business lobbyists including the U.S. Chamber of Commerce.
“That’s a good thing for the American people. That’s a good thing for the economy,” Senate Budget Committee Chairman Lindsey Graham said in a floor speech.
The bond market has shown signs of worry about the bill not passing in time to raise the debt ceiling, which would risk a devastating default. In recent weeks, the interest rate on some Treasury debt due in August has risen more than yields of short-term Treasury bills coming due around the same time, a sign investors are nervous. This also happened in 2023, when Congress reached a last-minute deal to avoid what would have been a catastrophic default.
As Republicans have pushed forward on a bill expected to drive the debt higher, Trump has stepped up his campaign against Federal Reserve Chairman Jerome Powell, repeatedly urging him to slash U.S. interest rates to 1%, a move that would dull the bill’s deficit effects.
DEEPENING DEFICITS
If the legislation now passes the House and gets signed into law by Trump, independent analysts warn that Americans can look forward to growing deficits, rising interest rates, waning economic vitality and mounting debt – if not an outright dislocation in U.S. bond markets.
“Republicans can spin it any way they want, but ultimately we’re heading towards deficits of $4 trillion within a decade,” said Jessica Riedl, a former Senate Republican aide who is now a senior fellow at the right-leaning Manhattan Institute.
U.S. government debt interest payments have surged over the past few years, going from about $500 billion in 2020 to over $1.1 trillion last year.
Analysts and investors warn of a longer-term danger from the precedent set by the Senate bill, saying it provides a template that both parties can use in coming years to hide the cost of legislative priorities that expand the debt and deficits.
Shai Akabas, vice president of economic policy at the Bipartisan Policy Center, warned that the alternative Republican baseline marks a dangerous new chapter in American political rhetoric and calls into question the readiness of political leaders to operate transparently.
“We have, I believe, entered a realm where there is no longer a consistent set of facts or independent sources that are being used,” Akabas told Reuters. “It makes it very difficult for the American public to understand what the consequences of legislation are going to be.”
(Editing by Scott Malone and Nia Williams)
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