Republican Bill Puts Nation on New, More Perilous Fiscal Path

 

News Analysis

Republican Bill Puts Nation on New, More Perilous Fiscal Path

 

Among the most expensive pieces of legislation in years, the Republican bill could reshape the country’s finances for a generation.

 

Andrew Duehren

By Andrew Duehren

Reporting from Washington

July 1, 2025

https://www.nytimes.com/2025/07/01/us/politics/republican-policy-bill-perilous-fiscal-path.html

 

Washington has not exactly won a reputation for fiscal discipline over the last few decades, as both Republicans and Democrats passed bills that have, bit by bit, degraded the nation’s finances.

 

But the legislation that Republicans passed through the Senate on Tuesday stands apart in its harm to the budget, analysts say. Not only did an initial analysis show it adding at least $3.3 trillion to the nation’s debt over the next 10 years — making it among the most expensive bills in a generation — but it would also reduce the amount of tax revenue the country collects for decades. Such a shortfall could begin a seismic shift in the nation’s fiscal trajectory and raise the risk of a debt crisis.

 

The threat is a reflection of the fact that Senate Republicans have voted to make tax cuts that the party first passed in 2017 a permanent feature of the tax code. That means the growth in the country’s debt, already at levels economists find alarming, would only accelerate as the bill shaves down the country’s main source of money.

 

“We are looking at the most expensive piece of legislation probably since the 1960s,” said Jessica Riedl, a senior fellow at the Manhattan Institute, a conservative think tank. “The danger is that Congress is piling trillions of new borrowing on top of deficits that are already leaping.”

 

Historically, lawmakers have been unable to make such a large change in the country’s finances without bipartisan support, helping contain how much debt is added at a time.

 

Why is this story labeled ‘News Analysis’? In this format, reporters with deep experience in the subject draw on their expertise to help you better understand an event. They step back from the breaking news to evaluate its significance and possible ramifications, but they may not inject their personal opinions.

 

That is because reconciliation, the special legislative procedure that Republicans used to avoid the filibuster in the Senate and pass the bill along party lines, has long included the requirement that bills cannot add to the debt for more than a decade. But Republicans decided to disregard that rule, relying on an accounting gimmick to argue that the $3.8 trillion cost of extending the 2017 tax cuts is actually zero and therefore they can continue indefinitely.

 

Not only has that argument opened the door to an even larger increase in the debt over time, but it is also an indication that lawmakers in Washington are becoming even less serious about containing the debt, analysts said. Bond markets, where investors from around the world buy and sell the government’s debt, have already shown some signs of stress as Republicans have pushed forward their bill.

 

“If I’m bond markets, and I’m forward-looking, I would be not just disappointed in what’s happening right now, in terms of the actual numbers, but also upset in terms of the precedent that’s being set,” said Kent Smetters, an economist at the University of Pennsylvania’s Wharton School. “It’s a little depressing.”

 

The cost is a critical sticking point as the bill heads back to the House, where some hard-right lawmakers have insisted that it needs to be cheaper before they can support it. But lowering the overall impact of the cost of the bill, much of which is caused by tax cuts, would probably require Republicans to cut the social-safety net even further, its own political challenge.

 

Even without this bill, the debt has been expected to reach record levels in the coming decades, with the nonpartisan Congressional Budget Office estimating that the debt held by the public, now about the same size as the economy, would grow to become roughly 56 percent larger than the economy by 2055. Making the 2017 tax cuts permanent could push the debt to become more than twice as large as the economy over the next 30 years, Ms. Riedl said.

 

The doomsday scenario for the nation’s debt is that the investors who lend to the government eventually lose faith in Washington’s ability to always pay them back. That could push investors to start expecting a higher interest rate on government bonds, a shift that could increase borrowing costs across the economy and weigh heavily on Americans’ financial fortunes.

 

At the same time, it is not a huge surprise that the 2017 tax law — which slashed individual income rates and expanded the standard deduction, among other changes — is persisting. Lawmakers in both parties are hesitant to ever claw back tax cuts, and bond investors have in all likelihood expected higher deficits stemming from the 2017 law’s extension.

 

“If you’re a bond investor, in reality you expected this thing to become law,” said Don Schneider, deputy head of U.S. policy at Piper Sandler, an investment bank, and a former Republican tax aide. He said that investors would continue to snap up government bonds, the bedrock of the global financial system.

 

“Everyone knows the budget is a total mess and it’s getting worse,” Mr. Schneider said. “But people don’t say, ‘The deficit is going to be really bad 20 years from now, I’m not going to buy Treasuries.’ They’re still doing it.”

 

But the Republican bill goes beyond simply extending existing tax cuts. It also introduces several new ones, including versions of President Trump’s campaign promises to not tax tips or overtime pay. Those policies are slated to last only through 2028, meaning Congress will again have to decide whether to extend expiring tax cuts. Given the popularity of lower taxes, and Democratic support for many of Mr. Trump’s ideas, lawmakers are likely to vote to extend them, effectively raising their cost.

 

“All of a sudden, it’s just this endless daisy chain of expiring tax cuts and temporary tax cuts, on and on, which really ratchets down federal revenue,” said Brendan Duke, senior director for federal fiscal policy at the Center on Budget and Policy Priorities, a liberal think tank.

 

It is for that reason that some budget analysts actually peg the price of the Senate bill far beyond the $3.3 trillion price tag. First, they add in the interest payments necessitated by that borrowing, an extra cost that the Committee for a Responsible for a Federal Budget said would bring the total to $3.9 trillion. And then adding in the cost of measures like no taxes on tips over 10 years, rather than just four, the group puts the price of the bill at $5.3 trillion.

 

Such a huge hit to the budget will only complicate future fiscal negotiations. Budget experts around Washington are already starting to prepare for the looming exhaustion of Social Security’s trust fund in 2033, which would jeopardize its ability to make full payments to beneficiaries. Diminished tax revenue will make finding a fix to the broadly popular program even more difficult.

 

“The biggest thing this fiscal change does is, when we’re staring at Social Security insolvency in 2032 or 2033, it’s going to make it a lot harder,” said Zach Moller, director of the economic program at Third Way, a center-left group. “The next president is going to be stuck dealing with Social Security. The fiscal situation is so bad that the next president is going to have a bad time.”

 

Andrew Duehren covers tax policy for The Times from Washington.