Trump Faces Debt Concerns Amid Tax Cuts
Washington – President Donald Trump is currently working to persuade Republican senators, global investors, voters, and even high-profile figures like Elon Musk that his multi-billion-dollar tax cut plan will not lead to excessive federal debt.
So far, the financial markets have reacted with skepticism, largely because Trump has yet to demonstrate he can cut the deficits as promised. Michael Strain, an economist at the American Enterprise Institute, which leans right, stated, “All this talk about reducing trillions in spending hasn’t materialized, and the tax reform just cements that concern. There are worries about the competence of Congress and this administration, making it riskier to add a large sum to the deficit.”
The White House has pushed back against anyone expressing worry about the increasing national debt during Trump’s presidency, despite having made similar critiques during his first term following the 2017 tax cuts.
Karoline Leavitt, Press Secretary for the White House, addressed the matter in a recent briefing, stating her desire to debunk what she called “false claims” regarding the impact of Trump’s tax cuts on the deficit. She highlighted that the assertion claiming the “Big, Beautiful Bill” adds to the deficit is based on flawed assumptions from the Congressional Budget Office and other analysts who have historically missed the mark in both Democratic and Republican administrations.
However, Trump himself has acknowledged that not cutting enough spending to balance tax reductions reflects the need to maintain a united Republican coalition in Congress. “We have to get many votes,” he mentioned recently. “We can’t be making cuts.”
This approach has led the administration to rely on the idea that economic growth will fix the debt issue—an assumption that has drawn criticism from many outside Trump’s inner circle.
Musk, who previously had close ties to Trump as head of the Government Efficiency Department (DOGE), expressed disappointment in an interview, saying, “Frankly, I was disappointed to see the huge spending bill that increases the budget deficit rather than decreasing it, undermining the work being done by the DOGE team.”
Federal Debt on the Rise
The tax cuts and spending measures recently passed by the House could potentially add over $5 trillion to the national debt over the next decade, according to the Committee for a Responsible Federal Budget, a fiscal watchdog group.
To make the financial impact of the bill appear smaller, various elements of the legislation are set to expire, much like the tax cuts from 2017 that are now leading to a dilemma as many of those reductions will lapse next year unless renewed by Congress.
The national debt has become a more pressing concern than it was eight years ago. Investors are now demanding higher premiums for government borrowing as the debt has surpassed $36.1 trillion, with the 10-year Treasury yield rising to around 4.5%, up from 2.5% when the earlier tax cuts were enacted.
The White House’s Council of Economic Advisers argues that their policies will spur growth fast enough to reduce annual deficits in relation to the overall economy, putting the U.S. on a sustainable fiscal path.
They project a 3.2% annual economic expansion over the next four years, far above the 1.9% forecasted by the Congressional Budget Office (CBO), claiming it could create or save up to 7.4 million jobs. While the CBO is regarded as a nonpartisan standard for evaluating policies, it does not provide cost estimates for executive measures like Trump’s tariffs.
Stephen Miran, the head of the Council of Economic Advisers, told reporters that the predicted growth, coupled with revenue from tariffs, would lead to reduced projected budget deficits. He maintained that tax cuts would enhance available funds for investment, labor, and domestic goods production, which, according to Miran, would drive growth without hosting new inflationary pressures.
“I want to assure everyone that the deficit is a very serious concern for this administration,” Miran recently stated.
Russell Vought, the White House budget director, reinforced this view, calling the notion that the bill harms debt and deficit “fundamentally incorrect.”
Economists Skeptical of Growth Projections
Most external economists, however, believe that increased borrowing will keep interest rates high and slow overall economic growth, which in turn will raise the costs of loans for homes, cars, businesses, and education.
Brendan Duke, a former advisor to President Biden, highlighted that growing debt will exacerbate challenges for future policymakers. He remarked that with tax cuts in the bill set to expire in 2028, lawmakers will also have to balance Security Social, Medicare, and expiring tax cuts all at once.
Kent Smetters of the Wharton School described the administration’s growth forecasts as “fiction,” suggesting that the bill could lead some workers to choose shorter hours in order to qualify for Medicaid.
“I don’t know of any serious analysts who have significantly raised their growth forecasts due to this legislation,” stated Jason Furman, a Harvard professor and former head of the Council of Economic Advisers under Obama. “These are not primarily growth-oriented tax cuts. In fact, rising long-term interest rates will likely hurt growth.”
The White House’s struggle to address deficit concerns effectively creates a political backlash for Trump as tax and spending cuts from the House move to the Senate. Republican Senators Ron Johnson and Rand Paul have voiced concerns about deficit increases, with Johnson indicating that there are enough senators who might delay the bill until expenditure reductions are addressed.
“I believe we have enough votes to halt the process until the president takes spending cuts and deficit reduction seriously,” Johnson told CNN.
Trump Places Hope in Tariff Revenue
The administration also believes tariff revenues will help cover the additional deficits, even as recent court rulings challenge the legitimacy of Trump’s economic emergency declaration to impose extensive import tariffs.
When Trump announced his sweeping tariffs last April, he claimed that his policies would generate sufficient new revenue to start reducing the national debt, aligning with statements from his advisors that the annual budget deficits could drop by more than half.
“It’s our time to thrive, and in doing so, utilize trillions of dollars to cut our taxes and pay down our national debt—all of which will happen very quickly,” Trump remarked two months ago while urging lawmakers to approve the tax and spending cuts separately.
While it’s true that the government can grow its way out of some fiscal pressures, new research from economists points out that growth alone isn’t sufficient to achieve stable outcomes.
Yale’s Ernie Tedeschi indicated that “additional growth doesn’t even get us close to where we need to be.” He emphasized that the government would need to reduce deficits by $10 trillion over the next decade just to stabilize the debt. Despite claims that tax cuts will spur growth, a significant portion of costs will preserve existing tax breaks, likely limiting their economic impact.
“It’s stalled,” Tedeschi concluded.
