The legislation includes a number of provisions that would increase baseline deficits, which are only partially offset by others that would reduce deficits. Some of the larger categories in the legislation addressed by the various committees are described below (figures are from CBO and indicate the change in deficits over the 10-year period from 2025 to 2034).

• Ways and Means ($3.8 trillion increase in deficits):
  • The bill would extend (and in some instances expand) the expiring provisions of the TCJA, including tax rates, limitations on the alternative minimum tax, a higher standard deduction, and an expansion of the child tax credit. The bill would also revive several business provisions, the costliest of which is the extension of lower tax rates on international income.
  • The bill would create or expand several other tax reduction provisions, including writing off factory expenses, no tax on overtime or tips for some employees, and a higher standard deduction for seniors who meet the income qualifications.
  • To partially offset the cost of the bill, the legislation would raise revenues by: reducing health benefits for certain immigrants, scaling back or eliminating tax credits enacted in the Inflation Reduction Act (including the electric vehicle tax credit), and instituting retaliatory taxes aimed at foreign jurisdictions that levy, by the current Administration’s estimation, unfair or discriminatory taxes on Americans.
• Armed services ($144 billion increase in deficits): The bill would provide funds for shipbuilding, air support, and investment in munitions infrastructure for national defense.
• Homeland security ($79 billion increase in deficits): The bill would provide funding for border wall construction, facility improvements, and other activities.
• Agriculture ($238 billion decrease in deficits): All of the Agriculture Committee savings come from a reduction in SNAP. The legislation would expand work requirements for beneficiaries, specifically targeting older beneficiaries (ages 55 to 64) and parents with children ages 7 to 18. Additionally, the bill would shift more benefits and administrative costs to states.
• Education and workforce ($349 billion decrease in deficits): The bill would limit existing repayment plans for student loans, set caps on borrowing depending on the type of program, and change how loan amounts are calculated.
• Energy and commerce ($1.1 trillion decrease in deficits): The vast majority of spending reductions from the committee are due to instituting work requirements and other changes in eligibility rules under Medicaid.

The cumulative effect of the above changes would result in an increase in deficits of $2.4 trillion. Additional borrowing generated by higher deficits would add $551 billion in interest costs over the 10-year period, for an aggregate deficit increase of $3.0 trillion over the decade.

The House reconciliation bill will make a dire fiscal situation worse. The debt was already on track to exceed the size of the entire economy and its historical high within the next five years. Recently, Moody’s Ratings became the last of the three major credit rating agencies to downgrade America’s credit rating – citing, in part, the country’s unsustainable fiscal outlook and the lack of political will to find solutions. Financial markets are also reacting to the debt outlook by pushing up interest rates on Treasury securities.

Now that the legislation is under discussion within the Senate, lawmakers have an important opportunity to improve it from a fiscal standpoint. The alarm bells ringing across the financial landscape should send a clear message that now is not the time to add additional trillions of dollars onto an already unsustainable outlook.

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