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Compromise increased the deficit. And Republicans back a new hospital fund. Look out!

Expect Another $4 Trillion in Debt

The Committee for a Responsible Budget (CFRB) reports Senate Reconciliation Bill Could Add Over $4 Trillion to Debt

As it currently stands, the Senate reconciliation bill is likely to add $3.5 to $4.2 trillion to the debt through Fiscal Year (FY) 2034, based on our estimates. The debt impact could rise as high as $4.5 trillion if various rumored adjustments are made. That’s $500 billion to $1.5 trillion more in borrowing than under the House-passed bill and will mean the Senate is likely out of compliance with the House reconciliation instructions.

Although many parts of the Senate bill are in flux, a Joint Committee on Taxation (JCT) score of the tax portion of the bill, the official estimate of the House bill, and reports from committees themselves allow us to construct a preliminary estimate of the bill both as it stands and assuming the removal of provisions that the Senate Parliamentarian advised violate the Byrd rule.

Based on these sources, we estimate the pre-Byrd rule Senate version of the One Big Beautiful Bill Act (OBBBA) would increase primary deficits by $2.9 trillion through FY 2034 and, after accounting for interest, increase total borrowing by $3.5 trillion. Removing provisions that have been flagged for noncompliance with the Senate’s Byrd rule, we estimate the bill would increase primary deficits by $3.5 trillion, boosting total borrowing by $4.2 trillion. With various rumored adjustments – especially to the SALT cap and Section 899 tax – borrowing could rise to $4.5 trillion.

Estimated Fiscal Impact OBBA

Noncompliant with House Instructions

The primary spending and revenue changes mean the Senate bill would not be compliant with the House reconciliation instructions, which allow $4.0 trillion of tax cuts to accompany at least $1.2 trillion of net ($1.5 trillion of gross) spending cuts, $4.5 trillion of tax cuts to accompany at least $1.7 trillion of net ($2.0 trillion of gross) spending cuts, or a sliding scale combination of tax and spending cuts sufficient to keep net primary borrowing below $2.8 trillion.

Senate Bill Would Push Debt Higher

Expect Things to Get Worse

The actual deficit impact could be far higher than under the bill as currently written. Senate Finance Committee Chairman Mike Crapo (R-ID) has already said he is dropping a $52 billion tax provision known as “Section 899”, which would have allowed the United States to apply “retaliatory taxes” when foreign countries tax American companies. Press reports suggest that senators are also currently negotiating a plan to increase the SALT cap and establish a new rural hospital fund, which could add $250 billion or more to the total cost. Costs could rise by hundreds of billions more on a dynamic basis, as higher debt pushes up interest rates.

Finally, the Senate bill includes a number of temporary provisions, including a massive temporary expansion of the Radiation Exposure Compensation Act (RECA), along with numerous temporary tax cuts and spending increases. Making these provisions permanent could add up to $1 trillion to the total cost of the Senate bill.

Retaliatory Tax Is Dead

On June 26, the Wall Street Journal reported Bessent Says Proposed ‘Revenge Tax’ No Longer Needed

The agreement among the Group of Seven largest economies means the “revenge tax” being contemplated in Republicans’ tax-and-spending bill should be removed from the legislation, Bessent said. The provision would have imposed additional taxes as high as 20% against companies from countries that imposed what the U.S. deemed as discriminatory taxes.

The potential tax, which would have become Section 899 of the tax code, had roiled markets and frustrated foreign-owned companies, who had argued that it would depress investment in the U.S. Removal, however, could punch a hole in the GOP tax bill; the House version was slated to raise $116 billion through 2034 and a gentler Senate version would have raised $52 billion.

In a joint statement late Thursday, the top tax writers in Congress said they would remove the language from the tax bill, which the House passed last month and could become law as soon as next week. House Ways and Means Committee Chairman Jason Smith (R., Mo.) and Senate Finance Committee Chairman Mike Crapo (R., Idaho) said they remain ready to act if other countries abandon or slow-walk the deal.

Nothing is Temporary

I find that amusing because no deal is signed, so it’s a unilateral concession by the administration.

The Senate weakened the House measure and now Bessent wants to scrap it all. The cost over the House version is $116 billion.

Senate Finance Committee Chairman Mike Crapo is “ready to act”.

What a hoot. Exactly how are you going to act is the bill is passed in the timeframe Trump demands? It would then take a filibuster-proof majority to react.

And temporary provisions? Please spare me the sap. The original TCJA was “temporary”, expiring next year.

Nothing in Congress is ever temporary.

New Rural Hospital Fund

Please note the debate to establish a new rural hospital fund. The CFRB says it could add $250 billion or more to the total cost.

How did this boondoggle happen?

The Hill explains Senate Republicans battle over rural hospital relief fund to offset Medicaid cuts

 

Senate Republicans including Sen. Susan Collins (Maine) say a new proposal to create a $15 billion relief fund for rural hospitals is not adequate to make up for tens of billions of dollars in federal Medicaid funding cuts included in the Senate megabill to enact President Trump’s agenda.

Collins told reporters Wednesday that the $15 billion relief fund floated by the Senate Finance Committee is likely not the final offer from Senate Republican leaders to address the concerns of several senators who worry the bill’s cap on health care provider taxes could put scores of rural hospitals out of business around the country.

“The Finance Committee has not made a final decision. It is accurate that I believe we need [a] $100 billion provider-relief fund. I don’t think that solves the entire problem. The Senate cuts in Medicaid are far deeper than the House cuts, and I think that’s problematic as well,” she said.

Sen. Lisa Murkowski (R-Alaska) is also skeptical that $15 billion would be enough to offset the Senate bill’s impact on small rural hospitals, according to a Senate GOP source familiar with the internal debate.

New Government Program

To offset Medicaid cuts that may not even happen, Republicans are talking about a “new” benefit.

The words “new government program” should strike fear into everyone’s heart.

The opening gambit is a mere $15 billion. But two Senators say no. Whatever the final number is, quadruple it.

Democrats will want to expand that, and will the next time they are in office. And you already see complicit Republicans.

This is what’s become of the Republican party. MAGA cheers.

What About Recession?

Good question. Budgets go out the window the moment there is an economic slowdown.

On June 20, 2025 I commented Did the Fed Just Predict a Recession for Later this Year?

The Fed does not “predict”, but its GDP projections say “yes”.

Expect a recession and more fiscal stimulus to counteract. I expect no less than a $2 trillion hit to the economy. Deficits will blow out.

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