Trump Tax Cut Renewal Is Winning Wall Street Despite $4.6T Price Tag

What You Need to Know

U.S. debt was 97% of GDP in December, and yields investors demand on 10-year Treasury bonds nearly rose to to 4.3% on Thursday.
Congress has routinely increased spending and cut tax rates since 2001.
Some conservatives propose targeting programs favored by Democrats, like Social Security and Medicare, to reduce the deficit.

The prospect of a fresh round of tax cuts next year is helping Donald Trump woo Wall Street donors but threatens to add trillions of dollars to the national debt.

The estimated $4.6 trillion cost of extending expiring portions of Trump’s 2017 tax cuts isn’t dampening Republican enthusiasm for renewal next year. Many simply reject cost projections, asserting that tax cuts pay for themselves through economic gains.

Independent analyses show that wasn’t true of Trump’s 2017 tax cuts and won’t be the case if they’re renewed in 2025. That sets up a big political fight over how — and even whether — to pay for them.

This time the nation’s debt load and interest costs are much heavier burdens after the deficit-financed Trump tax cuts, multiple rounds of pandemic stimulus and Biden administration spending on its signature clean energy, infrastructure and chip manufacturing initiatives.

U.S. government debt held by the public soared from 76% of GDP in 2017 to 97% of GDP in December. Yields investors demand on 10-year U.S. Treasury bonds nearly doubled, from 2.4% in 2017 to 4.3% on Thursday.

The federal government’s annual net interest payments surged from $263 billion to a projected $890 billion this year — more than the Defense Department budget.

The fiscal impact of the Baby Boom generation’s retirement is also weighing on the budget, with Social Security projected to run out of money to pay full benefits in 2033 and Medicare in 2036.

Budget Pain

While many Republicans deny the cost of the tax cuts, some conservatives propose targeting programs favored by Democrats to reduce the deficit. Those include cutting Social Security and Medicare over time, reversing Biden clean-energy tax breaks, shrinking other tax breaks or scaling back other social programs.

Trump has also floated a large increase in tariffs on imported goods. That would increase consumer prices but could replace at least some of the cost of extending the tax cuts.

The Congressional Budget Office in May projected it would cost $4.6 trillion cost over the next decade to extend the 2017 law’s expiring cuts in taxes on personal income, large inheritances and pass-through businesses, which include many small- and medium-sized firms. The law permanently lowered the corporate income tax rate.

That, according to analysis from the left-leaning Center for American Progress, would cause projected debt, as a share of GDP, to rise by 36 percentage points, to above 200%, by 2054.

In theory, the revenue lost by maintaining the tax cuts would be partly offset if that spurs higher rates of investment, job creation and growth. The nonprofit Committee for a Responsible Federal Budget has estimated, however, this so-called dynamic effect would recover just 1% to 14% of what’s lost in revenue.

The level of budget pain needed to offset the revenue loss would be unprecedented in modern Washington, where Congress has routinely increased spending and cut tax rates since 2001, the last fiscal year the federal government recorded a surplus.

Rohit Kumar, a former senior tax policy adviser to Senate Republican leader Mitch McConnell, said short-term priorities have trumped the deficit for decades and have a good chance to do so again next year.