How Republicans Are Hiding $3.8 Trillion in Trump’s Megabill

Senate Majority Leader John Thune returns to his office from the Senate Chamber at the U.S. Capitol Building on Monday. (Andrew Harnik/Getty Images)

Nonpartisan budget watchers expect President Donald Trump’s tax and spending bill to add as much as between $3 trillion and $4 trillion to the federal debt over the next decade. A Republican move to make those real costs all but disappear could have mammoth effects on how future lawmakers deal with the cost of their actions.

The procedural move Monday came as Republicans seek to enact an enormous bill that extends the individual tax cuts passed in 2017 during Trump’s first term. The legislation also adds cuts, like temporarily eliminating taxes on tips and overtime and permanently extending breaks for business interest and investment that have been long sought by corporations. The bill cuts some costs too—mostly by slashing Medicaid—but the savings aren’t expected to nearly approach the revenue lost from the tax cuts.

The bill will add about $3.3 trillion to the national debt over the coming decade, the Congressional Budget Office said over the weekend. But in a procedural action affirmed by GOP lawmakers, the Senate will essentially pretend that $3.8 trillion of the bill’s tax cuts don’t cost anything.

On Monday, senators voted 53-47 along party lines to affirm a decision by Senate Budget Committee Chairman Lindsey Graham (R., S.C.) to use a “current policy” baseline to calculate the cost of the tax breaks. The decision means that lawmakers can treat extending the 2017 tax cuts as costing nothing. Traditionally, the Senate uses a current law baseline, which would have accounted for the fact that the 2017 cuts are set to expire at the end of the year, increasing revenue.

“Apparently in this chamber, if the Republican chair of the Budget Committee says so, one plus one equals three,” said Sen. Ron Wyden (D., Ore.), who is the ranking member on the Finance Committee, on the Senate floor on Sunday.

Republican senators and the White House have argued that extending current rates reflects practical reality. “A baseline that assumes the expiration of all tax cuts (current law) is fundamentally dishonest and wrong. It does not ‘cost’ a penny to extend current tax rates,” wrote White House deputy chief of staff Stephen Miller in a post on X on Monday.

Senators are using the move not just for the optics but so they can advance the bill through the filibuster-proof reconciliation process. Reconciliation lets the Senate pass bills with a simple majority vote, but carries with it strict rules that bills only pertain to the budget and not add to deficits beyond a 10-year window.

Using the current-policy baseline or the usual method for calculating a bill’s deficit impact won’t change its effect on the U.S. fiscal situation, said Yale Budget Lab director of economics Ernie Tedeschi. He was the Council of Economic Advisers’ chief economist during former President Joe Biden’s administration.

“The bottom line is that a debt trajectory that was already unsustainable becomes even more unsustainable under this bill,” Tedeschi said.

Higher federal debt will likely have real-world effects on American’s finances. A Yale Budget Lab analysis published earlier this month estimated that the bill would lead to higher Treasury rates, which flows through to the cost of loans taken by consumers. A typical 30-year mortgage rate would rise 0.4 percentage point by 2030 and 1.5 percentage points by the end of 2055, compared to having no bill at all, the Budget Lab said.

The move weakens the filibuster, a tactic used to block legislation that can only be overridden by a 60-vote supermajority. It also sets a precedent that is likely to be invoked again. The megabill, for example, delivers a tax cut for overtime and tips that is set to expire after 2028, a date set to limit this bill’s costs. But if the Senate were in 2028 to decide to extend them again, the current-policy move would make the extension cost nothing.

Some Democratic lawmakers have already pointed out that a current-policy baseline in the future could be used to make their own goals reality. A future Democratic White House and Congress could, for example, pass a bill that creates universal healthcare benefits for all Americans but expires after one year, and then pass another bill extending the benefit permanently, while claiming that it costs nothing under a current-policy baseline.

“Now isn’t this a good idea?? #MedicareForAll would provide comprehensive universal health care to everyone! Republicans want to use ‘current policy’ baseline to kick 16 million Americans off of any healthcare they have right now,” wrote Rep. Pramila Jayapal in a post on X, responding to such a scenario posited by a reporter.

Write to Joe Light at joe.light@barrons.com