[UNITED STATES] House Republicans passed a sweeping tax cut package in May 2025 that risks adding trillions to the U.S. debt. The Committee for a Responsible Federal Budget estimates a $3.1 trillion increase in debt over a decade (rising to $53 trillion total), while the Penn Wharton Budget Model projects a $3.8 trillion surge when accounting for interest and economic ripple effects. The bill faces Senate hurdles as GOP dissent grows: Rep. Thomas Massie (R-KY) called it a “debt bomb,” while Sen. Rand Paul (R-KY) argued “the math doesn’t add up”.
The legislation arrives as U.S. debt interest payments now exceed defense spending, ranking second only to Social Security. Economists warn that higher debt-to-GDP ratios—projected to jump from 101% to 148% by 2034 under this bill—could spike consumer borrowing costs. For example, a 0.6 percentage-point rise in 10-year Treasury yields (tied to debt growth) might push 30-year mortgage rates from 7% to 7.6%, straining household budgets.
Republicans aim to offset tax cuts with spending reductions to safety-net programs like Medicaid and food assistance, alongside reliance on Trump-era tariffs. However, economists dismiss tariffs as unstable revenue, citing legal challenges and future reversibility. Bond markets already reflect anxiety: Moody’s downgraded U.S. debt in May 2025, and Treasury yields have climbed amid investor skepticism.
Implications
For Consumers: Middle- and lower-income households face a double squeeze. While the bill offers $4 trillion in tax cuts (skewed toward high earners), reduced social spending and pricier loans could negate benefits. Auto loans, credit cards, and mortgages—all tied to Treasury yields—may grow costlier, exacerbating affordability crises in housing and durable goods.
For Businesses: Higher interest rates could dampen corporate expansion and capital investment. Small businesses reliant on credit may struggle, while large firms face uncertainty over tariff-driven supply chain costs. Sectors like real estate and automotive manufacturing are particularly exposed to rate volatility.
For Policy: The bill tests GOP unity on fiscal responsibility. While proponents argue tax cuts stimulate growth, critics warn of unsustainable debt trajectories. Reliance on tariffs as a revenue tool introduces geopolitical risk, as trading partners may retaliate. The Senate’s upcoming debate will likely force compromises on spending cuts or tax provisions.
What We Think
The GOP’s “One Big Beautiful Bill” reflects a high-stakes gamble: short-term political wins (tax cuts, military spending) vs. long-term fiscal stability. While the House version prioritizes growth optics, its debt projections mirror 2017’s TCJA—which failed to deliver promised revenue-neutral outcomes.
Three critical questions remain unresolved:
Tariff Reliability: Banking on tariffs assumes prolonged trade tensions and legal durability. History shows such policies often unravel, leaving revenue gaps.
Bond Market Trust: With U.S. debt already at record highs, investors may demand even steeper yields, accelerating a debt spiral.
Intergenerational Equity: Younger Americans could inherit both austerity (from safety-net cuts) and higher taxes to service debt.
The Senate now holds the bill’s fate. If moderates like Sen. Mitt Romney (R-UT) join dissenters, expect demands for sunset clauses or spending safeguards. Yet with Trump urging swift passage, the GOP’s fiscal identity—populist stimulus vs. traditional conservatism—hangs in the balance.
This bill isn’t just about taxes—it’s a stress test for U.S. economic credibility. Markets and households will pay the price if lawmakers ignore the bond market’s warning flares.
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