Deficit hawks hate the latest version of the "big, beautiful bill"
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It was a busy weekend for the U.S. Senate, which narrowly advanced signature tax and spending legislation.
- The people most worried about the risks from U.S. fiscal deficits do not like what Republican senators came up with.
The big picture: The Senate version widens the budget deficit over the coming decade by half a trillion dollars more than the version of the One Big, Beautiful Bill Act that passed the House.
- In a four-way tug-of-war among different Republican policy goals — pro-growth tax relief, populist goodies, spending cuts, and deficit concerns — the Senate compromise neglected the last in favor of the other three.
- Deficit hawks are also worried that Republicans have set a new precedent that will allow future Congresses more freedom to blow out the deficit on narrow, party-line votes — by ignoring the reduced revenue from extending current tax policy in tabulating the bill's deficit impacts.
By the numbers: The Congressional Budget Office on Sunday projected the Senate version will reduce federal revenues by $4.5 trillion over the next decade, while reducing spending by $1.2 trillion.
- That makes for a net deficit widening of $3.3 trillion, compared to $2.8 trillion in the House version.
- The Committee for a Responsible Federal Budget estimates that the legislation would also result in higher borrowing costs for the federal government, adding another $690 billion to the cost.
- Republicans argue that the proper comparison is not to current law, under which Trump's 2017 tax cuts are set to expire this year, but to current policy, math that makes the legislation deficit-reducing.
Zoom in: On a range of hard-fought policy compromises, Republican senators found agreement by sweating the deficit less.
- For example, the Senate kept the House's $40,000 cap on state and local tax deductibility (up from a current $10,000). It also protected workarounds that allow some taxpayers to avoid the cap (the House sought to limit them).
What they're saying: "The House bill starting point was reckless to begin with," CRFB president Maya MacGuineas tells Axios. "The Senate is on the verge of passing something they made worse at almost every turn with more borrowing and more egregious gimmicks."
- "Many provisions in this bill are not even 'pro-growth' but only serve as temporary political goodies that will add to the economic ball and chain of debt that will be a drag on our economic vitality for generations to come," Carolyn Bourdeaux, executive director of the deficit-reduction group Concord Action, said in a statement.
State of play: MacGuineas argues that Senate Republicans' procedural step to treat the extension of 2017 tax cuts as costless sets a bad precedent for future fiscal policy.
- We should "expect to see the same accounting scam when Democrats want to extend spending increases and pretend they are free," she says.
Yes, but: There is precious little sign of bond market vigilantes fretting over the deficit outlook. The 10-year Treasury yield was down slightly Monday morning, and long-term yields were well below their levels this spring, when trade war fears were at their height.
- And business groups are rallying behind the legislation, arguing it is crucial for economic growth.
- "This critical legislation would protect and enhance the transformative economic benefits that President Trump's historic 2017 tax reform delivered for American businesses, workers and families," Business Roundtable president Kristen Silverberg said in a statement.
