On Thursday, President Donald Trump solidified one of the most significant — and costly — economic legacies in modern American presidential history. His Republican allies in Congress approved a second extensive tax cut that is set to exacerbate the nation’s fiscal imbalances for years to come. During his first term, Trump presided over an approximate $8 trillion increase in the federal debt, primarily driven by his initial tax cuts and emergency spending measures enacted in response to the coronavirus pandemic.
As Trump entered his second term, billionaire Elon Musk, who was part of the administration, pledged to reduce the federal debt by cutting government spending by over $1 trillion. This promise followed significant debt increases during the Biden administration. However, those initiatives fell flat after Musk exited the administration, and the new Trump tax cuts are anticipated to contribute more than $4 trillion to the national debt once interest costs and potential policy extensions are factored in.
Collectively, the Trump tax laws represent one of the most substantial fiscal expansions in peacetime U.S. history. Economists are divided regarding the extent to which Trump has surpassed the deficit increases of his predecessors, partly because the total revenue from new tariff collections remains uncertain. The One Big Beautiful Bill, which encompasses trillions in tax cuts across various income brackets, stands as the primary component of Trump’s deficit-increasing policies thus far.
According to Jessica Riedl, a senior fellow at the Manhattan Institute, the legislation is more expensive than the combined costs of Trump’s first-term tax law, the 2020 COVID stimulus package, and President Joe Biden's 2021 stimulus plan. Riedl asserts that Trump’s deficit increases have outpaced those of all prior presidents since at least Lyndon B. Johnson in the 1960s.
Some economists, including former Obama official Jason Furman, argue that George W. Bush likely added more to the deficit overall. However, Furman notes that Bush did so while inheriting a budget surplus, whereas Trump took office amid already high deficits. Last year, the national debt as a percentage of the economy was larger than at any point outside of the World War II, the aftermath of the 2008 financial crisis, or the COVID pandemic.
Deficit concerns were a driving factor behind Moody’s decision to downgrade the U.S. credit rating in May, marking the third major credit agency to do so due to inadequate progress on deficit reduction. Riedl stated, “President Trump has added more red ink than any president since at least LBJ, and he is doing so on top of deficits that had already been soaring.”
President Biden also contributed to the national debt, primarily with a $1.9 trillion stimulus package during his first year in office. Additionally, Biden's attempt to cancel approximately $400 billion in student debt was blocked by the Supreme Court. The White House has firmly rejected economists’ critiques, maintaining that the new tax bill does not worsen the nation's fiscal outlook and that the overall administration agenda improves it.
A White House memo from last month highlighted over $1 trillion in cuts to Medicaid and other programs resulting from the legislation, marking the largest spending reductions on the U.S. safety net in modern history. Treasury Secretary Scott Bessent and other officials have pointed to the administration’s broader strategy, which includes increased tariff revenue, cuts to federal regulations believed to stimulate growth, and additional unapproved spending cuts.
According to the White House memo, these measures could potentially reduce federal deficits by up to $6.9 trillion over the next decade. The administration claims that projections from the nonpartisan Congressional Budget Office regarding the deficit impact of the bill are misleading because they presume the expiration of the 2017 Trump tax cuts, an assumption the administration argues is politically unrealistic. The memo asserts that the new tax bill on its own would reduce projected deficits by over $1.4 trillion over the next ten years, partially by promoting additional economic growth.
Budget experts across the political spectrum, as well as analysts on Wall Street, have strongly disputed these claims. They argue that Trump’s tax law locks in trillions of dollars in revenue losses without corresponding spending cuts, thereby widening structural deficits at a time when the national debt is already at historic highs. While the administration contends that accounting for economic growth will lower the bill’s price tag, some analysts warn that the legislation could compel the Federal Reserve to maintain higher interest rates in response to the fiscal stimulus, potentially slowing economic growth.
Martha Gimbel, executive director and co-founder of the Budget Lab at Yale, stated, “This bill is very clear: There are a certain number of tax cuts, there are a certain amount of spending cuts, and they don’t offset each other. No amount of assumptions about the amount of growth we’ll get will overcome the reality on the ground.”
The long-term implications of these fiscal decisions will likely be felt long after Trump leaves office. Larger deficits may hinder the government’s ability to respond to future emergencies and put pressure on essential federal programs such as Social Security and Medicare. With the baby boomer generation retiring and health costs continuing to rise, the fiscal space consumed by these tax cuts could limit other policy options for years to come.
The legislation is expected to drive interest payments on the national debt up to $2 trillion per year, according to the nonpartisan Committee for a Responsible Federal Budget. Furman has pointed out that the Trump tax bill could complicate efforts for lawmakers to rein in the debt. After the Bush tax cuts, Democrats sought to roll back tax breaks for the wealthy and reallocate some of the savings toward deficit reduction or new programs. In contrast, Democrats may wish to respond to this new legislation by restoring Medicaid funding, clean energy incentives, and other policies that were repealed by Trump’s bill, leading to increased costs.
Trump’s tax bill not only extends existing policies that have garnered bipartisan support — such as a higher Child Tax Credit and a larger standard deduction — but it also introduces new populist measures, including a provision to eliminate taxes on tips and a $6,000 tax deduction for millions of seniors. If these provisions are extended, which seems likely, the nation’s fiscal imbalance could grow even larger.
Furman concludes, “The next Democratic administration will want to make this in some ways fiscally better, but in more ways want to make it fiscally worse. It is both worse than current policy and will prove hard to undo.”
