The US Capitol in Washington, DC, US, on Monday, June 2, 2025. Significant changes are in store for President Donald Trump's signature $3.9 trillion tax-cut bill as the Senate begins closed-door talks this week on legislation that squeaked through the House by a single vote.
The House-passed version of Republicans’ tax and spending bill would add $2.8 trillion to US deficits over the next decade, according to new estimates from the Congressional Budget Office that incorporate the broader impact the legislation would have on the economy and federal budget.
The new estimate is even bigger than a previous $2.4 trillion calculation, which hadn’t accounted for so-called dynamic effects. In a release Tuesday, the nonpartisan CBO said that higher interest rates from the bill would add $441 billion to deficits over a decade. The agency only saw an $85 billion reduction in borrowing thanks to economic effects, mainly through faster growth.
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While Republicans have argued their bill would stoke the economy, the CBO sees a marginal impact. Average annual growth would be 0.04 percentage point higher over the decade to 2034 as a result of the House’s tax and spending package. That’s on top of the CBO’s baseline of about 1.8% GDP growth over that period.
Treasury Secretary Scott Bessent has set a goal of 3% sustained GDP growth, and last month said the economy would be expanding at at least that pace after 12 months’ time. He and other GOP members have repeatedly derided CBO projections for not taking into account what they say are pro-growth incentives in the legislation.
Independent analysis has also indicated the bill will add to federal borrowing. The Penn Wharton Budget Model earlier this month tallied a $3.2 trillion increase to deficits over a decade after incorporating dynamic effects. The Tax Foundation weighed in at $3.1 trillion.
State of play
The tax bill currently faces headwinds, as Senate Republicans released their own version Monday with varying changes — some of which conflict with demands from GOP lawmakers in both chambers. The new CBO projections could further exacerbate concerns from fiscally conservative Republicans and complicate efforts to come to a consensus on the legislation.
The so-called “One Big Beautiful Bill” encompasses much of President Donald Trump’s economic agenda. It would make permanent his 2017 tax cuts while creating new breaks, including eliminating taxes on tips and overtime pay on a temporary basis.
The House-passed bill raises the cap for federal deductions for state and local taxes to $40,000 from $10,000. However, the measure is still under negotiation in the Senate where lawmakers are considering a lower cap amount.
The Senate draft version makes permanent three business tax breaks and that could boost the economic growth effects. On the other hand, it pares back breaks for workers and pass through businesses and includes deeper cuts to Medicaid that could weigh on growth.
Related: Senate lawmakers cut House retirement benefits in One Big Beautiful Bill: What’s in, what’s out
Tariff offset
The Trump administration has highlighted that the legislation doesn’t account for added revenues from increased import duties. Earlier this month, the CBO said that Trump’s tariff hikes — or at least those in effect as of mid-May — would shrink deficits by $2.8 trillion over a decade. That’s if they remained unchanged the entire period, which many economists don’t expect to be the case.
Matched with Tuesday’s $2.8 trillion increase in deficits, that would essentially be a wash.
Goldman Sachs Group Inc. economists earlier Tuesday said they see the budget deficit on “a slightly lower path than before” when combining the House package and increased tariff revenue.
“This would leave the total federal deficit on a roughly unchanged path over the next decade. But that path remains unsustainable,” the Goldman economists Manuel Abecasis, David Mericle and Alec Phillips wrote in a note. “Given the size of the imbalance, even inaction is costly,” with the debt-to-gross domestic product ratio set to exceed postwar highs, they wrote.
In a separate estimate, the CBO said that total debt held by the public could go up by an estimated $3.3 trillion as a result of the House bill, a figure that incorporates additional calculations.
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