Trump To Swell US Debt By $2.4tn

White House insists the bill will pay for itself, but fiscal hawks in the Senate are sceptical.

Donald Trump’s latest attempt to recast America’s tax code and shrink the welfare state is in deep trouble after the Congressional Budget Office said the package would raise federal borrowing by $2.4tn over the next decade. The numbers hand fresh ammunition to Republican deficit hawks and Wall Street executives who fear the United States is drifting towards a debt crisis.

The Bill, proudly dubbed the “big, beautiful Bill” by the president, extends the 2017 Trump tax cuts, pares back Medicaid and other social programmes, and lifts the statutory debt ceiling by a further $5tn. According to the CBO, the combined effect would slash revenues by $3.75tn while reducing outlays only by $1.3tn, leaving a gaping hole in the public finances and pushing the Treasury’s marketable securities well beyond the current $29tn outstanding.

“Elon Musk called it a ‘disgusting abomination’, and that is the polite version of what many bond traders are saying this morning,” one veteran strategist at a major US bank told GFM Review. JPMorgan Chase chief executive Jamie Dimon last week warned the Treasury market would “crack” unless Washington changed course. He fears investors will demand sharply higher yields to compensate for ballooning supply, thereby raising borrowing costs for households and businesses alike.

Senate arithmetic

The House of Representatives passed the Bill by a narrow margin late last month, but the battle now moves to the Senate, where the Republicans’ 53–47 majority leaves the leadership little room to manoeuvre. If every Democrat votes no, Donald Trump can afford to lose only three of his own senators and still scrape through with Vice-President J.D. Vance casting a tie-breaker.

That looks a tall order. Fiscal hawks such as Utah’s Mike Lee and Wisconsin’s Ron Johnson have already signalled alarm. “I came to Washington to cut spending, not add $2.4tn to the debt,” Mr Johnson said. Others worry about the human cost: the CBO reckons 10.9 million people would lose health insurance if the proposed Medicaid cuts take effect.

Senate majority leader John Thune emerged from a White House meeting on Wednesday sounding determined yet defensive. “The wheels are in motion,” he told reporters. “Failure is not an option. We will get this done one way or another. It’s complicated.” That complexity is one reason the legislation is attracting suspicion: the Bill runs to more than 800 pages and was rushed through the House in barely a fortnight.

White House counter-attack

The administration insists the watchdog’s mathematics are wrong. Press secretary Karoline Leavitt accused the CBO of “historic bias against Republican reforms” and claimed its models failed to capture the growth dividend from lower taxes and lighter regulation. “Our own analysis shows the plan will reduce the deficit by $1.6tn,” she said, without publishing the underlying assumptions.

Officials also argue that Mr Trump’s sweeping tariffs on imports, which the CBO analysed separately from the Budget Bill, would generate enough additional revenue to offset the headline borrowing increase. The agency itself was more cautious. In a supplemental note it estimated existing tariffs could, in theory, trim net debt by $2.8tn over ten years, but at the price of higher inflation and slower long-run growth. Consumer prices would rise by an average 0.4 percentage points this year and next, while real GDP would be 0.6 percentage points smaller by 2035 as trading partners retaliate.

Markets on edge

Treasury yields jumped after the report landed, and futures traders briefly priced in an extra quarter-point rate rise from the Federal Reserve before paring bets back. “Investors had assumed some version of fiscal discipline would return after the election,” said Priya Misra, strategist at TD Securities. “Instead we are staring at bigger deficits, higher supply and the risk the Fed will have to do more of the heavy lifting on inflation.”

The bond market’s nervousness reflects how dramatically America’s debt burden has swollen since the financial crisis. In 2008, Treasury debt in public hands stood at roughly $5tn. Today it is six times larger, even before the president’s latest gambit. The Government now spends more on interest than on defence, and the figure will rise sharply if yields climb another percentage point.

Political stakes

The president’s calculation is that voters will reward a fresh round of tax cuts, particularly the made-for-television doubling of the standard deduction, in next year’s election. Critics reply that the benefits skew heavily towards the wealthy while the savings come from programmes that help the poor and disabled. Democrats have seized on the CBO numbers as evidence the White House is selling a mirage. “This Bill has gone from bad to worse,” said Ron Wyden, the party’s lead on the Senate Finance Committee. “If Republicans truly believe in it they should defend it in daylight instead of trying to ram it through at midnight.”

Elon Musk’s opposition has given the Democrats unexpected cover. The billionaire entrepreneur was one of Donald Trump’s biggest financial backers in 2020 and helped bankroll the new Department of Government Efficiency, a pet project that has trimmed some administrative overheads. His public U-turn deprives the White House of a useful ally and emboldens wavering centrists.

Path to Independence Day

Mr Trump has told aides he wants the Bill on his desk by 4 July to claim victory at a nationally televised rally. To do so, the Senate must vote before breaking for the mid-June recess, giving lobbyists barely a fortnight to shore up support. The White House is counting on intense pressure from conservative media and grass-roots activists to keep defections to a minimum.

Yet several Republicans remember the failed effort to repeal Obamacare in 2017, when Senator John McCain famously voted thumbs-down. “We have seen this movie before,” one veteran GOP staffer said. “Leadership will twist arms, but if two or three members decide the numbers don’t add up, that is that.”

What happens if it fails?

Should the legislation collapse, Congress would still need to raise the debt ceiling by early autumn to avoid a government shutdown. Some analysts think a pared-back package focused solely on the borrowing limit could pass with bipartisan support, especially if markets wobble. Others believe the president would pivot to blaming Democrats and the CBO for standing in the way of growth.

For now, the numbers are stark. By 2034, federal debt held by the public would reach roughly 115 per cent of GDP under current law, according to the CBO. Add the president’s plan and the ratio would rise closer to 125 per cent. Even optimistic White House growth forecasts would leave the figure well above today’s level, drawing America nearer to the club of highly indebted nations that includes Italy and Greece.

Outlook

Donald Trump has framed his second-term agenda as a fight against “bureaucratic waste and redistributive handouts”. Yet the uncomfortable arithmetic of tax cuts without matching spending reductions is now on full display. Republicans who campaigned on balanced budgets must decide whether to swallow hard and vote yes, trusting forecasts few outside the West Wing believe, or defy a president who prizes personal loyalty.

An answer could come within days. The Senate Budget Committee begins its markup next week, and lobbyists on both sides are already flooding offices with revised scorecards. One thing is certain: Wall Street, Beijing and Brussels will all be watching whether the United States is about to test the limits of the world’s reserve currency.