Trump’s Tax Bill Won’t Help or Hurt the Economy. The Deficit Is Already Huge.

President Donald Trump’s megabill is still stuck in the Senate without a vote. (Al Drago/Getty Images)

Senate Republicans pushed the mega tax and spending bill another step closer to President Donald Trump’s ahead of his self-imposed July 4 deadline. But for all the efforts to pass the more than 900-page legislation, Citi Global Chief Economist Nathan Sheets doesn’t expect it to do much to the deficit or for economic growth.

After senators wrestled through the night and Vice President JD Vance cast the tie-breaking vote**,** Trump’s megabill now goes to a decisive vote in the House. The legislation extends many of the tax cuts from the first Trump term, cuts Medicaid and food stamp spending, boosts spending for defense and immigration enforcement, alter student loan repayment programs, and raises the debt ceiling, among other issues within its 900-plus pages.

One concern among some economists and deficit hawks has been that the bill could expand an already large U.S. deficit. But Sheets tells Barron’s the U.S. is on track to see a huge deficit with or without the bill, in the ballpark of 6% to 6.25% of gross domestic product. That level would require about $20 trillion to $22 trillion of Treasury issuances over the coming decade.

“There’s a lot of discussion around where the bill is going to land but we are talking about hundredths of a percentage point in impact [to the deficit]. It just takes a lot to appreciably move the U.S. fiscal deficit picture,” says Sheets, who previously worked in the Treasury Department.

The Trump administration has said the bill will bolster growth, helping it pay down the deficit. But Sheets is skeptical.

“Maybe it will be mildly stimulative—a few tenths of a percent of GDP—in the early ears and mildly contractionary in later years,” he says. “But the argument that this is going to jump-start growth and push GDP potentially up to 3% isn’t my baseline, and it makes me nervous when people try to assert that will be the baseline.”

What would be more meaningful for economic growth? Sheets points to the administration’s deregulation plans.

“There’s still a lot of work to do on deregulation and that could come front and center [after the bill] and would be an upside case for growth,” he says.

One other wild card is the economic impact of Trump’s tariffs and trade policy—something Sheets thinks could become more visible in the fall. Companies had built up inventories, acting as a buffer in recent months. The question now is when those inventories will be whittled down.

Import data show a big increase in inventories the first quarter, with April and May returning to a more normal pace, but still above where it was pre-election. That suggests companies have not drawn down those inventories completely yet. That is likely coming and could show up in price increases or weaker margins in the fall, Sheets says.

Write to Reshma Kapadia at reshma.kapadia@barrons.com