By Richard Rubin

WASHINGTON -- House Republicans' last-minute grappling over the details of President Trump's "big, beautiful" tax-and-spending bill has them colliding with a stark reality: The plan won't reduce federal budget deficits and would make America's fiscal hole deeper.

The current proposal would increase projected budget deficits by nearly $3 trillion through 2034, locking in tax cuts and spending increases that outweigh reductions in spending on Medicaid and nutrition assistance. While Republicans, who have vowed to reduce red ink, say higher economic growth will fill the gap, budget analysts across the political spectrum have panned the Republican plan, warning that it worsens the U.S. fiscal picture.

The bill could reach the House floor this week, and it is a tenuous balance between the party's tax-cut wing and factions seeking larger, quicker spending cuts. To get a bill through the House with their 220-213 majority, GOP tax cutters trimmed their ambitions and scheduled some breaks to expire. Many spending hawks, meanwhile, backed the plan while groaning that it doesn't go far enough fast enough. Others are holding out for more.

The measure stalled in the Budget Committee on Friday. Party leaders spent the weekend negotiating with lawmakers pushing in both directions. Conservative hard-liners such as Rep. Chip Roy (R., Texas) want accelerated spending cuts and quicker expirations of clean-energy tax breaks. Lawmakers such as Rep. Jen Kiggans (R., Va.), are concerned that clean-energy breaks vanish too quickly. Rep. Nick LaLota (R., N.Y.), sought a higher top marginal income-tax rate to help pay for a larger state and local tax deduction.

Speaker Mike Johnson (R., La.) said on Fox News on Sunday morning that the package remained "on track" and predicted it would pass the House ahead of leaders' self-imposed Memorial Day deadline.

Moody's Ratings, in downgrading the U.S.'s AAA rating on Friday, said it didn't expect Congress to produce material multiyear spending or deficit reductions. Publicly held federal debt stands at about $29 trillion, nearly double the level when Trump and Republicans passed the 2017 tax law. Nearly $1 in every $7 the U.S. spends goes toward paying interest, more than the country spends on defense.

"While Republicans were campaigning on reducing spending and controlling the growth in the debt, once they put pen to paper, their real priorities demonstrate that they care a lot more about cutting taxes," said Romina Boccia, director of budget and entitlement policy at the libertarian Cato Institute.

Republicans hear those concerns -- and see the bill as a positive fiscal step. It prevents a 2026 tax increase they view as unacceptable and alters social-safety-net programs in ways that the last all-Republican government couldn't achieve eight years ago.

White House budget director Russell Vought described the spending cuts as historic.

"It should not be lost on anyone, the degree to which it ends decades of fiscal futility and gets us winning again," Vought wrote on X in a plea for fiscal hawks' votes.

Rep. Jay Obernolte (R., Calif.), a Budget Committee member, said the Republican plan would unquestionably put the country on a stronger fiscal footing.

"If you have to pick between a higher-tax, higher-spending regime and a lower-tax, lower-spending regime, the latter is always better for economic growth," he said.

Democrats emphasized the gap between Republicans' budget rhetoric and the bill.

"People will lose healthcare. Kids and the veterans will go hungry. Rural hospitals face closures," said Rep. Becca Balint (D., Vt.) "And yet the very rich will get even richer at the expense of our children and grandchildren, who will shoulder the burden of that additional debt."

In designing a partisan plan that increases budget deficits, Republicans are mindful about what happens if their bill falls apart. The alternate path to preventing a tax increase on most households would require a bipartisan coalition with Democratic votes.

That could further increase deficits. Democrats favor extending most tax cuts but would push to let tax cuts expire for top earners. They would, however, reject Republican spending cuts and seek extensions of expanded tax credits for purchasing health insurance.

Taxes and spending out of sync

Here's the basic picture: The U.S. has a structural imbalance between taxes and spending, due to its aging population, spending increases, rounds of tax cuts and emergency programs during the 2008 financial crisis and the Covid-19 pandemic.

Higher public debt can push up bond yields and interest rates and crowd out private investment. Bond yields are already much higher than in 2017 when Republicans passed their original tax-cut bill, pressuring lawmakers to be mindful of deficits.

If Congress does nothing, the country will borrow another $21 trillion from 2025 through 2034. That would increase publicly held debt as a share of gross domestic product to 117% from about 100%, topping the post-World War II high, according to the Congressional Budget Office.

Compared with that scenario, the Republican bill widens deficits by about 13%, reducing spending but lowering revenue by more.

The bill would cut taxes by nearly $4 trillion, compared with doing nothing. That includes extensions of expiring tax cuts and new temporary cuts to fulfill Trump's campaign promises. It is partially offset by tax increases, including limits on top earners' itemized deductions and clean-energy tax breaks.

The GOP plan generates about $1.6 trillion in spending reductions and other deficit-reducing policies. Those include work requirements for Medicaid recipients, restrictions on nutrition assistance and student-loan changes. The bill includes several hundred-billion dollars in spending increases on border security, national defense and support for farmers.

Final official estimates aren't available, but the total deficit effect is roughly $2.7 trillion compared with doing nothing and letting tax cuts expire, according to the Committee for a Responsible Federal Budget. The bill may change as Republicans maneuver it to Trump's desk by July 4.

"On the horizon that investors care about, which is the first four years, it makes it worse," said analyst Don Schneider of Piper Sandler. Still, he said, many spending cuts, including Medicaid changes, are real, indicating that Republicans are capable of restraining a major entitlement program.

Counting on growth

Republicans often argue that deficits won't actually climb if the bill passes. They are counting on the bill's tax cuts and Trump's agenda of deregulation and oil-and-gas production to accelerate economic growth so much that extra tax revenue covers the costs.

Those claims, however, usually don't include any drag from Trump's tariffs, and economists say they are too optimistic about policies revving up the U.S. growth rate.

"Relying on economic growth has become the magic wand that Republicans are waving at any possible problem," the Cato Institute's Boccia said.

Some Republicans say it is more realistic to assume expiring tax cuts get extended, then measure the bill after that $3.8 trillion adjustment. Viewed that way, the bill would reduce deficits.

However, the $2.7 trillion deficit increase likely underestimates potential budgetary effects. The legislation schedules popular tax cuts to expire after 2028, including extra boosts to the standard deduction and child tax credit and versions of Trump's plans to eliminate taxes on tips, overtime and Social Security benefits.

There will be political pressure to extend them and business tax breaks, just like today's push for continuing expiring 2017 tax cuts. That would add $1.8 trillion, according to the Committee for a Responsible Federal Budget.

"They assume the entire Trump agenda expires at that point, and that seems unlikely to me," said Marc Goldwein, the group's senior vice president. "The costs are front-loaded. That is the main driver."

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

May 18, 2025 21:00 ET (01:00 GMT)

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