
“Republicans are using the budget reconciliation process to cut spending, extend the 2017 tax cuts, reform health care, increase border and defense funding, and deliver on many of President Trump’s campaign promises.”
But other bad things in the bill outweigh the good. It will increase the national debt by trillions of dollars. Its tax cuts are so much bigger than its spending cuts that the federal budget deficit, which is already $2 trillion per year, will rise further. That will increase spending on interest on the national debt in future years, which will increase federal spending. Interest on the national debt also crowds out private investment, because when people are investing their money in treasury bonds, that money isn’t being invested in private sector businesses like factories and the energy sector.
The Senate Republican bill is even worse than the House Republican bill. The Senate bill will increase the national debt by at least $3.3 trillion over a decade, more than the House bill, which would increase the national debt by at least $2.4 trillion over a decade. Some of the things in the bill that would increase the national debt are supported by both political parties — such as the stupid idea of abolishing taxes on tips, which is backed by both political parties, such as in the Senate, which has previously voted to abolish the tax on tips. Exempting tip income unfairly discriminates in favor of people who get a particular kind of income. It also gives the service sector a tax break rather manufacturing, which needs tax relief more because our manufacturing sector competes with foreign manufacturers.
The bill also expands the qualified business income deduction that many well-to-do professionals receive, from 20% to 23%. Those fortunate people don’t need another tax cut, and we can’t afford to give them one when America is already running a budget deficit of $2 trillion. [CORRECTION: The final version of the Senate bill keeps the qualified business income deduction at 20%, unlike the House bill, which raised it to 23%.]
The bill also increases the amount of deductions from income tax for seniors, who don’t need special help because seniors have a lower poverty rate than non-seniors and disproportionately benefited from the 2017 tax cuts, meaning that most of them don’t need yet another tax break.
A conservative economist criticizes the Senate bill, saying that its tax cuts are not well-designed and will not generate much economic growth, even before taking account the economic burden resulting from the bill’s increase in the national debt: “First time I’ve seen a tax cut so poorly designed that the dynamic score RAISES the cost by $356 billion. The infinitesimal growth revenues are dwarfed by the rising inflation and $441 billion in interest costs from higher interest rates.”
The fiscal irresponsibility of the bill may result in interest rates rising on the national debt. An economist points out that the bill’s current version “doesn’t provide any reassurance to US bondholders that that Congress is in any way serious about addressing the unsustainable entitlement programs driving the growth in US spending that will eventually lead to a debt crisis.” She added that the bill’s modest cuts to social programs are “far outweighed by the additional pork, both on the spending side and on the tax side.”
Another economist notes that the Senate bill “also includes more than half a trillion dollars in new and expanded tax subsidies and other pork. The result? More debt. The bill will add trillions to the national debt and violate the House’s agreed-upon fiscal guardrails unless lawmakers scale back the pork or deliver more spending cuts.”
The Senate bill’s “senior tax giveaway would accelerate Social Security insolvency. The Committee for a Responsible Federal Budget (CRFB) reports that the temporary additional senior deduction in the Senate version of the OBBBA would accelerate the Social Security trust fund’s insolvency. The CRFB explains, ‘Of particular relevance for Social Security beneficiaries, the Senate version of OBBBA would increase the total standard deduction for many senior couples by over $13,000 (including a temporary $12,000 increase in the additional senior deduction) in 2026, to over $47,000. This would reduce the number of seniors paying taxes on their benefits and reduce the marginal rate at which some of their benefits were taxed.” An economist “calls this temporary provision ‘a blatant vote-buying effort to benefit an electorally powerful group, who already receive 40 cents of every federal dollar on top of holding most of the nation’s wealth.’”
The increase in the national debt resulting from the bill could spark inflation. Massive debt-financed government spending increased the inflation rate under President Biden. Joe Biden’s deficit-increasing policies caused inflation, according to even Democratic economists like Harvard’s Larry Summers — who was Treasury Secretary under President Clinton — and Obama economic advisor Steven Rattner.
The federal budget deficit doubled to roughly $2 trillion from 2022 to 2023, noted the Tax Foundation. And it will be around $2 trillion this year, even before accounting for any tax cuts that Republicans may pass this year. That doubling is “basically unprecedented in U.S. history during relative peace and prosperity,” noted economist Brian Riedl in September 2023.