The cost of Trump's tax reform bill is high! CBO predicts it will increase federal debt by $2.8 trillion over ten years.

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) recently released a joint assessment showing that if Trump's spending and tax reform bill are ultimately implemented, it will increase the federal debt by $2.8 trillion over the next ten years. Previously, CBO had made a preliminary assessment without considering macroeconomic impacts, estimating that the bill would increase federal debt by $2.4 trillion between 2025 and 2034. The latest version now takes into account changes in interest rates due to economic growth, resulting in a higher estimate of budget deficits. Specifically, CBO projects that the bill will boost real GDP growth by 0.5 percentage points over the next decade but will also raise the 10-year U.S. Treasury bond rate by 0.14 percentage points. The increase in rates will lead to an increase in borrowing costs that outweighs the increase in tax revenue from economic growth, exacerbating the fiscal deficit. After estimating the increased borrowing needs of the government, CBO projects that the bill will increase publicly held federal debt by $3.3 trillion by 2034, pushing the debt-to-GDP ratio to 124%, higher than the current CBO baseline projection of 117%. The White House has not yet responded to CBO's assessment. Previously, White House officials had suggested that there are issues with CBO's calculations and claimed that the bill would help reduce the deficit. White House Council of Economic Advisers Chairman Stephen Miran downplayed the fiscal impact in a TV interview, stating that "the reactions to CBO's estimates from the outside world are overblown." The release of the CBO budget report comes at a crucial moment when the Senate is weighing its own version of the bill. The Senate version continues the individual tax cuts introduced by Trump in his first term in 2017, while adding several new tax provisions, including exemptions for tips and overtime pay. The House passed the bill in May by a narrow margin. Fiscal conservatives have expressed concerns about the cost of the bill, while moderate Republicans from states that support the Democratic party have called for a substantial increase in the cap on state and local tax (SALT) deductions. The Senate Finance Committee released some details of its tax provisions and cuts to healthcare subsidies on Monday. The Senate version will permanently retain policies such as deductions for research and development expenses, interest expenses, and full expensing of assets. However, the Senate currently maintains a $10,000 cap on SALT deductions, much lower than the $40,000 cap passed by the House, leading to strong opposition from Republicans who support SALT reform. The Senate says that the deduction cap is still under negotiation. With overall Democratic opposition to the bill, both the House and Senate Republicans can only afford to lose three votes each in order to pass the bill. Congressional leaders have stated that their goal is to send the bill to Trump's desk for signature before the Independence Day on July 4. In addition, the US Treasury and CBO estimate that the federal government may hit the debt ceiling as early as August or September. This legislation is also seen as part of raising the debt ceiling, making the end of July the de facto deadline for passing the bill. It is worth noting that the current House version is seen by many analysts as the "most cautious" fiscal version that Congress may pass. In contrast, the Senate plans to use the so-called "Current Policy Baseline" as the budget assessment standard, assuming that the 2017 tax cuts have become permanent, although this does not change the actual fiscal impact, it will conceal the true cost of the bill, allowing for more extensive tax cuts.