On May 22, the U.S. House of Representatives passed a major tax and spending bill primarily intended to extend the income tax cuts originally embodied in the 2017 Tax Cuts and Jobs Act.
Congress had made the tax cuts “temporary,” scheduled to expire at the end of 2025, a common sleight of hand employed to obscure the true increase in the national debt over the 10-year forecast window. Without Congressional action this year, tax rates would return to their 2017 levels.
The legislation, officially named the “One Big Beautiful Bill Act” (seriously), cleared the House by one vote but faces an uphill fight in the Senate, which is not on board without some alterations.
The task of assessing the fiscal impact of congressional legislation is assigned to a nonpartisan agency within the legislative branch called the Congressional Budget Office. The office is the official scorekeeper and is charged with producing a forecast and analysis assessing the impact over a 10-year horizon.
The Congressional Budget Office must, by law, score proposed legislation in comparison with its outlook if current law is maintained. The baseline projection under current law shows the national debt rising from $29 trillion this year to $49 trillion by 2034 if the tax cuts were to expire.
The budget scorekeeper expects the tax cut bill to add an additional $3 trillion to the debt, taking it to more than $52 trillion in 10 years, or 124% of total gross domestic product. The previous record was 112% of GDP during the midst of World War II.
In addition to worsening an already unsustainable debt burden, the distributional effects are concerning.
It is certainly true that the bulk of the relief would accrue to taxpayers with the highest incomes, since the tax code is deliberately progressive. But many voters may not recognize the magnitude of the skew.
The Congressional Budget Office expects a 4% increase in after-tax household resources for the top 20% of families but a 4% decline for families in the bottom 20%, owing to cuts in Medicaid and food assistance. (The budget estimate predicts that 11 million Americans could lose health care coverage.)
The University of Pennsylvania Wharton model has a starker assessment: an average gain of $389,000 for those in the top 0.1% of incomes in 2026 but a loss of more than $1,000 for families earning less than $20,000. Households in the middle 20% of income would realize a net gain of $845.
Analyses of the One Big Beautiful Bill (ugh) are creating headaches for some Senate Republicans.
Proponents of the bill are responding by engaging in a favorite Washington parlor game: shoot the messenger, accusing the the Congressional Budget Office of shading the numbers out of partisan interest.
President Trump said as much on his social media platform: “The Democrat inspired and controlled Congressional Budget Office (CBO) purposefully gave us an EXTREMELY LOW level of growth, 1.8 percent over 10 year – how ridiculous and unpatriotic is that!”
The air came rushing out of that balloon once it was noted that the current director, Phillip Swagel, is a Republican in good standing, a former Bush White House staffer who was critical of President Obama’s budget proposals. The Congressional Budget Office is scrupulously nonpartisan.
Next up: claim that the the Congressional Budget Office underestimates the explosive growth that would be unleashed, reprising a long-standing trope that tax cuts can generate net revenue increases.
The idea that tax cuts can pay for themselves goes back at least as far as the Reagan administration but has never been close to true. For example, total revenue since the passage of the 2017 Trump tax cuts came in about $1.5 trillion higher than projected by the the Congressional Budget Office, but two-thirds of that was simply unexpected inflation and most of the rest was a one-time boost to capital gains taxes from the COVID recovery.
Tax cuts can certainly stimulate growth at the margin but never anywhere near enough to offset the lost revenue.
Real GDP grew at an average 2.4% during the first Trump term, which was indeed faster than the approximately 2% predicted by the the Congressional Budget Office. However, that was still the second slowest rate of growth for any presidential administration since Harry S. Truman in 1953.
The bottom line is that the the Congressional Budget Office estimated $1.1 trillion in new debt from the 2017 Tax Cuts and Jobs Act. Instead, we added $15 trillion, equally divided between the Trump and Biden administrations, a 75% increase.
When all else fails, there are alternative facts. Administration officials, including the White House press secretary and the director of the Office of Management and Budget, have falsely stated that the bill would actually reduce the deficit by $1.4 trillion. They arrive at this preposterous conclusion by counting only the cuts in Medicaid, food stamps and education, and completely ignoring the nearly $4 trillion hemorrhage from the tax cuts themselves.
If you don’t trust the the Congressional Budget Office, perhaps other respected forecasters can lend a hand.
Alas, the Yale Budget Lab, the Tax Foundation and the Manhattan Institute all model similar results, boosting the total debt to around $53 trillion in 2034. The only outlier is the Penn Wharton model, which sees the debt soaring even higher to $56 trillion. That model predicts the economy will actually shrink and lose jobs relative to the baseline due to the massive government debt crowding out private investment.
The bill is likely to undergo revision in the Senate, reducing the depth of cuts to social welfare programs but exacerbating the growth in deficits. The changes will rankle House hardliners, but most likely something gets worked out before summer. Yet by no means will it address the increasingly urgent imperative of taming the debt beast.
That would require the political courage to tackle structural reform of entitlement programs over the next generation and to accept the reality that taxes must rise. That is a discussion for another day, hopefully, before it is too late.
Christopher A. Hopkins, CFA, is a co-founder of Apogee Wealth Partners in Chattanooga.
