President Donald Trump’s ambitious tax and spending bill, a cornerstone of his administration’s economic agenda, is facing a wave of skepticism and concern from prominent economists and even former allies like Elon Musk.
As the legislation, which narrowly passed the House in May, heads to the Senate, its potential to significantly increase the national debt and widen the US budget deficit is under intense scrutiny.
Elon Musk, who recently departed his role as a “special government employee” in Trump’s White House, has become a vocal critic of the GOP spending bill.
In a pointed post on X earlier this week, Musk described the legislation as a “massive, outrageous, pork-filled Congressional spending bill” and a “disgusting abomination.”
His primary contention is that the bill, contrary to efforts to slash government spending, will exacerbate the budget deficit. President Trump responded to Musk’s critique, calling it “disappointing.”
The bill in question proposes to reduce tax rates for lower-income workers, particularly those earning less than $107,200, and aims to eliminate taxes on tips, social security, and overtime.
However, it also includes cuts to social programs such as Medicaid and SNAP (Supplemental Nutrition Assistance Program) benefits, which provide food assistance to low-income Americans.
Like Musk, many investors and economists are expressing apprehension that these measures will cause the national debt to balloon.
The non-partisan Congressional Budget Office (CBO) stated this week that the bill would likely grow the deficit by $2.4 trillion over the next decade.
President Trump and his allies have countered these concerns, arguing that the economic growth spurred by lower taxes would ultimately boost government revenue.
Expert dissections: a spectrum of economic concerns
A diverse group of leading economists has weighed in on the bill’s potential ramifications, offering analyses that largely echo the fiscal concerns:
Phillip L. Swagel, Director of the Congressional Budget Office:
Despite the proposed tax relief for lower earners, Swagel, in a May 20 letter, outlined a negative impact on poorer Americans.
“CBO estimates that household resources would decrease by an amount equal to about 2 percent of income in the lowest decile (tenth) of the income distribution in 2027 and 4 percent in 2033, mainly as a result of losses of in-kind transfers, such as Medicaid and SNAP,” he wrote.
Conversely, Swagel noted, “resources would increase by an amount equal to 4 percent for households in the highest decile in 2027 and 2 percent in 2033, mainly because of reductions in the taxes they owe.”
This suggests a regressive impact, disproportionately benefiting higher-income households.
William McBride, Chief Economist at the Tax Foundation:
McBride and his colleagues at the non-partisan Tax Foundation, in a May 23 report, acknowledged that the bill could support economic growth but concluded it wouldn’t be sufficient to offset the revenue loss from the tax cuts.
“Our preliminary analysis finds the tax provisions included in the House-passed bill would increase long-run GDP by 0.8 percent,” the report stated.
However, it also projected that “The bill’s tax and spending changes would increase the 10-year budget deficit by $2.6 trillion from 2025 through 2034 on a conventional basis before added interest costs.
On a dynamic basis, accounting for economic growth, the deficit would increase by $1.7 trillion over ten years before interest costs.”
The report further detailed that “The bill’s tax provisions alone would reduce federal tax revenue by $4.1 trillion from 2025 through 2034 on a conventional basis before added interest costs. On a dynamic basis, accounting for economic growth, the revenue reduction would fall by nearly 22 percent to $3.2 trillion over 10 years before added interest costs.”
Six Nobel laureates:
In a joint letter dated June 2, six Nobel Prize-winning economists—Daron Acemoglu, Simon Johnson, Peter Diamond, Paul Krugman, Oliver Hart, and Joseph Stiglitz—warned that the bill would worsen wealth inequality in the US.
“The combination of cuts to key safety net programs like Medicaid and SNAP and tax cuts disproportionately benefiting higher-income households means that the House budget constitutes an extremely large upward redistribution of income,” they wrote.
“Given how much this bill adds to the US debt, it is shocking that it still imposes absolute losses on the bottom 40% of US households.”
The laureates concluded, “The House bill addresses none of the nation’s key economic challenges usefully and exacerbates many of them.”
Ken Rogoff, Professor of Economics at Harvard University:
Rogoff, a former chief economist at the International Monetary Fund (IMF), expressed skepticism about the bill’s growth-boosting claims in a piece for Project Syndicate this week.
“Trump and his acolytes argue that his ‘big, beautiful bill’ will supercharge economic growth, generating enough revenue to make up for sweeping tax cuts. But history offers little support for such claims,” he wrote.
Rogoff pointed out that “While both Democratic-led spending sprees and Republican-backed tax cuts have fueled the growth of US debt over the past two decades, tax reductions have accounted for the lion’s share of the increase. Moreover, the notion that tax cuts pay for themselves was already discredited in the 1980s, when President Ronald Reagan’s tax cuts led to soaring deficits rather than self-sustaining growth.”
He added a cautionary note about the potential consequences: “Will America’s rising debt ultimately trigger a full-blown crisis? Perhaps, but a continued upward drift in long-term interest rates is more likely.”
Desmond Lachman, Senior Fellow at the American Enterprise Institute:
Lachman, another former IMF official now with the conservative-leaning think tank, warned in a June 4 post that rising bond yields, a declining dollar, and appreciating gold prices could be harbingers of an economic crisis precipitated by Trump-driven policy volatility.
He argued that Trump’s tax bill is heightening investors’ fears due to its inflationary implications.
Furthermore, Lachman highlighted a specific clause in the bill that he believes undermines confidence in the reliability of returns on US Treasuries: “That bill includes a clause that has to be sending shivers down foreign investors’ spines.
According to Section 899, the US Treasury can impose additional taxes of up to 20 percent on income earned by foreign entities from countries that enact taxes deemed ‘unfair’ to US interests.”
This provision, he suggests, could deter foreign investment in US debt.
As the bill moves to the Senate, these expert analyses and critiques will undoubtedly play a significant role in shaping the ensuing debate over its economic merits and fiscal sustainability.
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