Forecaster says US House version of Trump bill to cost $2.8 trillion despite economic gains

The U.S. Congressional Budget Office projects that President Trump's tax-cut and spending bill will increase the deficit by $2.8 trillion over the next decade, even with increased economic output. This dynamic analysis contrasts with a previous CBO estimate of a $2.4 trillion deficit increase, excluding economic effects, and independent analysts suggest the Senate version of the bill could lead to a $5 trillion debt increase due to permanent business tax breaks.

Analysis

The U.S. Congressional Budget Office's dynamic analysis projects President Donald Trump’s proposed tax-cut and spending bill, referred to as the "One Big Beautiful Bill Act," will increase the federal deficit by $2.8 trillion over the next decade, even when accounting for anticipated positive effects on economic output. This projection is more substantial than the CBO's prior static estimate of a $2.4 trillion deficit increase, which excluded economic feedback effects, and the total cost including interest payments on the new debt could reach $3 trillion. Furthermore, independent analysts suggest that the Senate's iteration of the bill could amplify the debt increase to as much as $5 trillion over ten years, largely due to provisions making certain business tax breaks permanent, in contrast to the House bill where they would sunset. These figures indicate a significant prospective rise in U.S. sovereign debt, a development carrying notable implications for the nation's fiscal outlook.

Key Decisions for Investors

• Investors should closely monitor the legislative progression of the tax and spending bill, particularly scrutinizing the differences between the House and Senate versions and their projected impacts on the federal deficit.
• It is advisable to assess the potential long-term macroeconomic consequences of a significantly increased U.S. deficit and national debt, including possible upward pressure on interest rates and shifts in currency valuations.
• Consider reviewing fixed income allocations and evaluating the necessity for portfolio adjustments should concerns over U.S. fiscal sustainability and debt trajectory escalate.