Recently passed legislation by President Trump is set to add trillions to the national debt in order to finance permanent tax cuts, according to most traditional forecasts.
While Republicans assert that the bill will spur economic activity to counterbalance the tax revenue lost, very few economists are convinced. The implications of this could be severe for upcoming generations.
Experts warn that increased debt can lead to higher long-term costs and may complicate future spending on social services. There’s a risk of sluggish economic growth, which could even push the country towards a debt crisis.
Traditionally, concerns about national debt have been a priority for Republicans. The House Freedom Caucus criticized GOP Senators for their growing deficit spending due to the final version of what they call the “Big, Beautiful Bill.”
Freedom Caucus member Keith Self (R-Texas) expressed his frustration, stating that the Senate’s proposal would completely disregard established frameworks and add over a trillion to the deficit. “It’s not just reckless; it’s financially criminal,” he claimed.
Self, along with others who advocate for fiscal responsibility, noted that they had received assurances from Trump regarding revisions to include in the bill. GOP leadership argued that the bill would not abandon fiscal responsibility by framing it as a reduction in deficits overall.
“Let me be absolutely clear: it reduces the deficit. If you’re looking at current law honestly, this translates to a ten-year deficit reduction,” they claimed during discussions leading to the bill’s passage.
In the meantime, the Congressional Budget Office (CBO) projected that the bill could add $3.4 trillion to the national debt over the next decade. Other organizations, such as the Responsible Federal Budget Committee and the Cato Institute, have estimated even higher figures of $4.1 trillion and $6 trillion, respectively.
Jessica Riedl, an economist from the Manhattan Institute, stated, “This bill is likely to become the most expensive legislation of the past sixty years. It’s among the most irresponsible measures we’ve seen.”
How did everything reach this point?
The federal government has been spending beyond its means, resorting to borrowing through bonds and other securities that yield guaranteed returns for investors.
By the end of 2024, civilians, businesses, and other entities are projected to hold around $28.1 billion in government bonds, constituting nearly 98% of the nation’s GDP.
This differs from the commonly cited total debt of $36 trillion, which also includes intra-governmental debt—money the federal government owes to various funds like Social Security. This total debt figure is significant for discussions surrounding the national debt ceiling, an issue that has been politically contentious in recent years.
Many economists prefer examining public-held debt against GDP rather than in absolute terms.
Over the last five years, debt has surged dramatically in relation to GDP, largely due to the significant federal expenditures implemented during the COVID-19 pandemic.
The annual interest cost on this debt is also considerable, accounting for about 16% of federal expenditures for the fiscal year 2025.
Even before the emergence of the “Big, Beautiful Bill,” economists had warned that the existing trajectory of spending was unsustainable. The new legislation carries around $4 trillion in tax cuts and additional spending, which are partially offset by $1.1 trillion in net spending reductions.
“It may provide a short-term boost to the economy, but the long-term consequences could be significantly detrimental,” noted Dominique Lett, a policy analyst at the Cato Institute.
Impacts of increased borrowing
As the United States borrows more funds, interest rates on government bonds typically rise to attract investors. This rise increases borrowing costs for everyday consumers and businesses alike.
The Yale Budget Lab anticipates that, as a result of increased borrowing, the yield on ten-year Treasury bills—a key indicator of investor sentiment—could increase by 1.2 percentage points by 2054 compared to a scenario without the bill’s passage.
This increase would elevate costs for mortgages, commercial real estate loans, and other lending types, as highlighted by economist Ernie Tedesci.
For instance, a typical mortgage could cost an additional $1,100 over five years based on a standard 20% down payment. Over thirty years, this could amount to an extra $4,000 in costs.
“Rising interest rates are a pressing issue for Americans; they have felt the impact, especially in the context of post-pandemic inflation and pricing,” Tedesci emphasized. “It’s a real kitchen-table concern.”
Moreover, elevated government borrowing could stifle other investments, as explained by Ben Harris, an economist at the Brookings Institute.
“Instead of channeling funds into productive sectors like technology or healthcare, money would flow towards paying off debts,” he remarked.
Earlier estimates from the CBO suggest that by 2054, debt could reach 166% of GDP, and some predict the bill could push that figure even higher. The Yale Budget Lab projects a debt-to-GDP ratio of 179.1% by the same year while taking the bill into account.
While some from both parties advocate for ignoring the constraints of economic laws regarding debt—citing the elasticity and size of the American economy—experts express uncertainty, especially given the concerning pace at which debt is outpacing economic growth.
“In the long run, we might be heading straight into a full-blown debt crisis,” Riedl warned. “Eventually, the bond market could fully react to government borrowing demands.”
Future financial dilemmas
Some fiscal conservatives envision a balanced budget approach, meaning the government should only spend as much as it earns within a fiscal year. Achieving this would require drastic spending cuts or substantial tax hikes, both of which carry significant political risks.
Economists predict that stabilizing the debt in relation to GDP would demand at least a $10 trillion deficit reduction in the next ten years. “It’s a tall order,” acknowledged Tedesci.
Discussions around reducing spending, particularly on Medicaid—the largest single item impacting debt—are making even Republican Congress members uncomfortable, especially given their historical reticence to exceed $900 billion in a decade.
Social Security and Medicare, critical federal health programs for the elderly, remain primary targets for those advocating deficit reductions. “To plug these gaps, we might need to implement significant tax increases on the middle class or make drastic cuts to programs like Social Security and Medicare,” Riedl warned.
Both programs are heading towards insolvency under current guidelines, with projections that funds may start running out within the next decade. The new legislation could slightly accelerate this timeline, according to estimates from the Responsible Federal Budget Committee.
Consequently, Congress will soon face challenging decisions about whether to raise or cut taxes in 2032. “If higher taxes are implemented, they’re likely to come through payroll taxes, affecting middle-class families significantly,” noted Robert Greenstein, a fellow at Brookings. “Some gaps might also be addressed through reductions in Social Security benefits, which disproportionately impacts future generations.”
While the new law offers tax cuts, particularly for higher-income individuals, it may ultimately reduce GDP over the long term compared to existing policies—by 0.3% in ten years and 4.6% in thirty, according to analyses from the University of Pennsylvania’s Wharton School.
“The more we borrow now, the tougher future decisions are going to be,” Lett added. “If current adjustments seem challenging, just wait until what’s necessary in the future.”
