Trump proposes policies that would increase the soaring national debt

President Trump is pursuing policies, including extending the 2017 tax cuts, that are projected to significantly increase the national debt, already at $36.2 trillion, despite warnings from economists and some Republicans; the CBO estimates the proposed legislation would add $2.4 trillion to borrowing over the next decade, raising concerns about potential economic consequences such as dampened growth and increased borrowing costs, even as the White House argues the policies will spur economic growth sufficient to offset the deficit impact.

Analysis

The Trump administration is advancing fiscal policies, notably the "One Big Beautiful Bill" aimed at extending the 2017 tax cuts and increasing certain expenditures, which are projected to substantially elevate the already soaring national debt, currently at $36.2 trillion. The Congressional Budget Office (CBO) estimates this legislation alone will contribute an additional $2.4 trillion to federal borrowing over the next decade. This trajectory contrasts sharply with the White House's assertion that these policies will foster sufficient economic growth to reduce the deficit, a view many independent economists find implausible. Concerns are mounting among economists, Wall Street executives, and even figures like Elon Musk, who warn of "crushingly unsustainable debt" potentially dampening economic growth, crowding out private investment, and increasing U.S. borrowing costs. These anxieties are underscored by Moody's recent downgrade of the U.S. federal government's rating, citing unaddressed deficit growth, and market indicators such as rising yields on 10- and 30-year Treasury bonds. While the administration anticipates significant revenue from tariffs, the CBO projects these would also shrink the economy, and their long-term stability remains uncertain, with a May 13 CBO estimate suggesting tariffs could cut the deficit by $2.8 trillion over 10 years but not accounting for future revisions or legal challenges. The core fiscal imbalance stems from escalating social safety net costs combined with successive tax cuts, a structural issue the proposed policies appear poised to exacerbate, with the CBO warning that debt could exceed 250 percent of GDP by 2055 if current trends persist.

Key Decisions for Investors

• Investors should closely monitor the progression of U.S. fiscal legislation due to its significant implications for Treasury yields and sovereign credit, especially given the CBO's $2.4 trillion additional borrowing projection for the proposed bill and Moody's recent downgrade.
• Consideration should be given to portfolio adjustments to mitigate risks from potential increases in borrowing costs and economic headwinds if deficit concerns escalate further.
• Long-term investors ought to assess the impact of a rapidly growing national debt, which the CBO projects could exceed 250% of GDP by 2055 under historical spending and revenue averages, on sustained economic growth and private investment opportunities.