GOP megabill’s final score: $3.4T in red ink and 10 million kicked off health insurance, CBO says

The Congressional Budget Office (CBO) forecasts that the recently enacted legislative package will increase the federal deficit by $3.4 trillion over the next decade and lead to 10 million people losing health insurance. This significant fiscal impact is primarily driven by the $4.5 trillion cost of permanently extending the 2017 tax cuts, which far outweighs over $1 trillion in healthcare spending cuts. Notably, a separate CBO analysis, requested by Senate Republicans, projects a deficit increase of only $366 billion when the cost of tax cut extensions is zeroed out, reflecting a key debate in fiscal accounting.

Analysis

The Congressional Budget Office (CBO) has released its final assessment of the new legislative package, projecting a significant fiscal deterioration over the next decade. According to the CBO's standard accounting, the bill will increase the federal deficit by $3.4 trillion, a figure driven primarily by the permanent extension of the 2017 tax cuts, which are estimated to reduce federal revenues by $4.5 trillion. This substantial cost is only partially mitigated by over $1 trillion in planned spending cuts, the majority of which target federal health care programs, including Medicaid. The legislation is also forecasted to result in 10 million individuals losing health insurance coverage. A crucial point of contention, however, is the existence of an alternative CBO analysis, requested by Senate Republicans, which uses a different accounting method that nullifies the cost of extending existing tax policy. Under this alternative framework, the projected deficit increase is a far more modest $366 billion, highlighting a deep partisan divide on fiscal measurement and signaling potential for future volatility in fiscal policy debates.

Key Decisions for Investors

• Investors should anticipate upward pressure on long-term Treasury yields due to the projected $3.4 trillion deficit increase, which will necessitate significant future government borrowing and could impact valuations across fixed-income and equity markets.
• Expect sustained headwinds for the healthcare sector, particularly for hospital operators and managed care organizations with significant Medicaid exposure, given the projected $1 trillion in spending cuts and 10 million newly uninsured individuals.
• Monitor the ongoing debate over fiscal accounting methods, as the stark contrast between the standard CBO score and the alternative $366 billion figure signals heightened political and policy risk surrounding future budget and tax legislation.
• Evaluate exposure to consumer-facing industries, as the stimulative effect of tax cuts for some households may be partially offset by reduced spending from those facing the loss of health insurance and increased out-of-pocket medical costs.