The U.S. Capitol in Washington, D.C., on June 2, 2025. Photographer: Al Drago/Bloomberg.
The House-passed version of Republicans’ tax and spending bill would add $2.8 trillion to U.S. deficits over the next decade, according to estimates released last week by the Congressional Budget Office (CBO) that incorporate the broader impact the legislation would have on the economy and federal budget. This new estimate is even bigger than a previous $2.4 trillion calculation, which hadn’t accounted for so-called “dynamic effects.” In a release last Tuesday, the nonpartisan CBO said that higher interest rates caused by the bill would add $441 billion to deficits over a decade.
The agency expects to see the bill’s economic effects offset other provisions’ increase in federal government borrowing by only about $85 billion, mainly through faster growth. Although Republicans have argued their bill would jumpstart the economy, the CBO projects 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 version of the tax-and-spending package, on top of the CBO’s baseline of about 1.8 percent GDP growth over that period.
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Treasury Secretary Scott Bessent has set a goal for sustained gross domestic product (GDP) growth of 3 percent, and last month he said the economy would be expanding at that pace—or faster—after 12 months’ time. He and other Republicans have repeatedly derided CBO projections for not adequately accounting for 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 expected increase to deficits over a decade after incorporating dynamic effects. The Tax Foundation weighed in with an estimate of $3.1 trillion.
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 tax breaks, including temporarily eliminating taxes on tips and overtime pay.
The bill is currently facing headwinds, as Senate Republicans released their own version last Monday with some changes that conflict with demands from Republican lawmakers in both chambers. For example, the House-passed bill raises the cap for federal deductions for state and local taxes to $40,000 from $10,000. However, that measure is still under negotiation in the Senate, where lawmakers are considering a lower cap amount. The Senate draft version of the tax bill makes permanent three business tax breaks that could boost the bill’s 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.
The new CBO projections could exacerbate concerns from fiscally conservative Republicans and complicate efforts to come to a consensus on the legislation.
Tariff Revenue Could Offset the Bill’s Tax Reductions
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 the tariff hikes in effect as of mid-May would shrink deficits by $2.8 trillion over a decade. That’s if they remained unchanged throughout the decade, which many economists don’t expect to happen. Matched with last week’s $2.8 trillion projection of deficit increases, that would essentially be a wash.
Before the CBO report was released, Goldman Sachs Group Inc. economists said they see the budget deficit on “a slightly lower path than before” when combining the House package with 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-GDP ratio set to exceed postwar highs, they wrote.
In a separate estimate, the CBO said that total debt held by the public could rise by an estimated $3.3 trillion as a result of the House version of the One Big Beautiful Bill, a figure that incorporates additional calculations.
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