A newly enacted piece of legislation from President Trump could add trillions to the national debt as it aims for permanent tax cuts, according to many standard estimates.
While Republicans assert that the bill will spur enough economic activity to compensate for the lost tax revenue, most economists don’t really see it that way. The potential repercussions for future generations could be quite significant.
Increased debt can become more burdensome in the long run, leading to challenges for policymakers when it comes to spending and social support programs. This might stifle economic growth and, as some experts warn, could result in a debt crisis.
Interestingly, Republicans have been known to express concern over national debt. The House Freedom Caucus has criticized GOP Senators for including more deficit spending in the final “Big, Beautiful Bill.”
“The Senate isn’t paying attention. Their version actually adds more to the deficit and ignores the House’s framework,” Rep. Keith Self of the Freedom Caucus (R-Texas) remarked before casting his vote days later.
“This isn’t just reckless; it’s financially irresponsible,” he added.
Rep. Self and others in favor of fiscal responsibility claim they had certain assurances from Trump, who wanted to support their agenda in this bill. To push it through the Senate’s budget reconciliation process, GOP leaders argued that the bill wouldn’t worsen the deficit but instead reduce it.
“Let me be clear: it reduces the deficit. Honestly evaluating the current law shows it offers a 10-year reduction,” a claim shared in the lead-up to the bill’s passage.
Contrarily, the nonpartisan Congressional Budget Office estimated that the legislation might increase the nation’s debt by $3.4 trillion over the next decade. Other groups, like the Responsible Federal Budget Committee, have projected a $4.1 trillion increase, while the conservative Cato Institute has suggested it could reach $6 trillion.
“This legislation could end up being the most expensive since the 1960s,” noted economist Jessica Riedl from the Manhattan Institute. “It’s undoubtedly one of the most irresponsible bills to date.”
What’s led to this situation?
The federal government has often spent more than it has earned, forcing it to borrow funds by issuing bonds and securities that attract investors.
As of late 2024, the public held about $28.1 billion in government bonds, which is around 98% of the gross domestic product (GDP).
This figure is quite different from the frequently mentioned total debt of $36 trillion. The latter includes intra-government debt, which is money owed by the federal government to various entities, like the Social Security trust fund. This overall debt figure plays a role in discussions about the national debt ceiling, a politically charged issue in recent times.
Instead, economists typically prefer to assess public-held debt as a fraction of GDP rather than outright numbers.
Debt levels have risen sharply over the last five years in relation to GDP, largely due to trillions in federal relief measures initiated during the Covid-19 pandemic.
The interest expenses on national debt also represent a considerable portion of the federal budget, accounting for about 16% of total federal outlays in the fiscal year 2025.
Even before the “big and beautiful bill” was on the table, economists had warned that the long-term trajectory of spending was unsustainable. The new law is said to be partially offset by around $4 trillion in tax cuts, new expenditures, and a net cut of about $1.1 trillion.
“There might be some short-term benefits to the economy, but long-term implications are likely to be much worse,” asserted Dominique Lett, a policy analyst at the Cato Institute. “We’re essentially putting weight on future generations.”
Effects of borrowing down the line
As the United States borrows more, interest rates on government bonds typically rise to attract more investors, which in turn raises borrowing costs for consumers and businesses.
Yale Budget Lab forecasts that if the bill passes, the yield on 10-year bonds—an important indicator of investment sentiment—might rise by 1.2 percentage points by 2054 compared to a scenario where the bill did not pass.
This could lead to pricier mortgages and business loans, according to economist Ernie Tedesci, who served on President Biden’s Economic Advisory Council.
Tedesci predicts that in five years, the interest on a standard home mortgage could increase by around $1,100 a year based on a $413,000 loan with a 20% down payment. Over 30 years, the extra cost from the bill might add up to about $4,000 annually to that mortgage.
“I think people recognize that rising interest rates are a pressing issue they cannot ignore, especially given the inflation, spikes in costs, and increased borrowing rates following the pandemic,” he remarked.
“It’s definitely a topic around the dinner table,” he added.
Furthermore, the push for more government borrowing could potentially crowd out other investments, noted Ben Harris, an economist at Brookings Institute.
“If investors are focused on purchasing government debt instead of putting money into areas like technology or healthcare—which are essential for national productivity—it diverts resources from more productive ventures,” he explained.
This year, the CBO projected that debt might reach 166% of GDP by 2054. Some estimates suggest this ratio could rise even higher due to the new legislation. Yale Budget Lab forecasts it could reach 179.1% under the impact of the new bill.
There are voices, both Democrat and Republican, calling for a complete reevaluation of debt, arguing that the laws of economic gravity don’t necessarily apply to U.S. debt given its size and adaptability. But given the swift pace at which debt is climbing relative to economic growth, many economists remain skeptical.
“In the long run, we face the risk of a serious debt crisis,” warned Riedl. “At some point, the bond market may struggle to provide sufficient loans at reasonable interest rates, and that crisis could begin from high government borrowing needs.”
Challenges ahead
Some budget-conscious lawmakers dream of achieving a balanced budget, but that would necessitate substantial cuts or major tax increases—both politically dangerous moves.
Many economists estimate that to stabilize debt as a percentage of GDP, a reduction of at least $10 trillion in deficit spending over the next decade would be required. “That’s a tall order,” Tedesci remarked.
“The most contentious cuts proposed against critical programs like Medicaid are even being discussed by Republicans in Congress, though they’re not entirely comfortable with the idea, especially since they’ve never touched $900 billion over a decade,” he noted.
Significant components driving national debt include Social Security and Medicare, which provide healthcare for the elderly. Fiscal conservatives have long eyed these programs as a means of addressing deficits.
“To close these funding gaps, we might have to double taxes on the middle class or make significant changes to Social Security, Medicare, and defense spending,” Riedl warned.
Both Social Security and Medicare face potential bankruptcy risks unless their current trends shift. It’s projected that they could begin running out of funds within the next decade, and the new legislation might accelerate that timeline, according to the Responsible Federal Budget Committee.
This sets the stage for immediate tough choices regarding tax increases or cuts in 2032.
“If we need more revenue to fill the larger Social Security and Medicare gaps, it’s likely to come from payroll taxes,” pointed out Robert Greenstein, a fellow at Brookings. “Some of these shortfalls might be addressed through cuts to Social Security benefits, which will have implications for future generations.”
While Megaville offers tax cuts for some, particularly higher-income Americans, it could potentially diminish GDP over the long haul, estimating a 0.3% decrease in 10 years and 4.6% in 30 years, as per analysis from the Wharton School at the University of Pennsylvania.
“The more we borrow now, the harder those future decisions will be,” added Lett. “If you find current adjustments challenging, just wait—future adjustments will likely be even tougher.”
