Thus, thanks to the Republicans’ creative manipulation of the office’s forecasting methodology, they (and the CBO) are significantly understating the real impact their “beautiful” bill would have, if enacted in its current form, on US deficits and debt.
The office’s analysis also doesn’t yet account for the impact of the proposed spending and cost-cutting on the economy. That’s an analysis that may come later, but the net effects would be to increase inflation and interest rates and add to the already threatening levels of deficits and debt.
Republicans argue that the bill will boost growth, although most independent analyses say that it will have minimal, if any, impact on US GDP over the decade. That is because the core of the bill, the $US3.8 trillion of tax cuts, are an extension of what’s in place today, rather than a new and stimulatory cut to taxes.
They also argue that Trump’s tariffs will raise vast amounts of revenue, which they should, if not the $US2.8 trillion the CBO has projected.
Trump and the Republicans don’t, however, highlight the fact that the revenue will come largely from US consumers and will be economically damaging. Trump’s tariffs are a massive new tax on consumption.
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The CBO’s assessment of the revenues that Trump’s tariffs might raise does try to assess their economic effects, with the office saying it will reduce the size of the economy. It also says inflation will rise by an annual average of 0.4 percentage points in 2025 and 2026 as a result of the tariffs and that, by 2035, the US economy would be 0.6 per cent smaller than forecast in January this year.
The problem with the CBO’s analysis of the tariffs is that it has based it on where the tariffs are set today and therefore doesn’t include whatever might happen when the 90-day pause on Trump’s global tariffs ends next month.
What that might look like is also dependent on the courts, with the administration appealing a decision by the US Court of International Trade that the use of the International Emergency Economic Powers Act to impose the baseline and “reciprocal” tariffs was illegal.
There are, however, other, albeit more time-consuming, avenues for Trump to impose those tariffs if that ruling is upheld by the appeals courts.
The CBO assessment, for obvious reasons, also can’t include the outcomes of the individual negotiations the administration has been having with dozens of countries over what the tariff rates might be. Nor does it include the recent doubling of the rate on steel and aluminium imports.
The extent to which countries that export to the US might retaliate is another unknown, as is the effectiveness of that retaliation in targeting sensitive elements of US supply chains and industrial sectors.
Elon Musk has been a vocal critic of the bill, and he has some Republicans on his side. Credit: Getty Images
There’s no precedent for what Trump is doing on trade. Even without whatever the tariffs might add, at their current levels the average US tariff would rise from less than 2.5 per cent to more than 15 per cent.
It should also be noted that the office assumes those tariffs in place today (subject to the outcomes in the courts) will remain in place for a decade. Given that only Trump and a handful of trade hawks in his administration think imposing tariffs on America’s closest allies and trade partners is a good idea, that’s a questionable assumption.
If they do the level of damage that some analyses conclude they could – raising inflation and interest rates, slashing investment, generating shortages of critical goods, shrinking employment, causing a sharemarket sell-off – they might not even last this Trump term.
If taken at face value, however, it would appear that Trump’s tariffs more than offset Trump’s tax cuts and other spending.
Trump’s tax cuts heavily favoured wealthy Americans. Low-income households got little from them.
The tariffs, by adding to inflation and the cost of goods, will be regressive, given that low and middle income Americans spend a higher proportion of their income on goods.
If the tariffs were to raise $US2.8 trillion over the next decade, they would essentially be a $US2.8 trillion tax hike that would fall most heavily on low and middle-income households.
It’s an interesting political strategy: proposing tax cuts for the rich but tax increases for the poor.
There’s no precedent for what Trump is doing on trade.
The outcomes for both the bill and the tariffs are still up in the air, with a small, but potentially decisive, group of fiscally conservative Senate Republicans holding out for bigger spending cuts, the fate of the tariffs overshadowed by the court proceedings and the “negotiations” with America’s trade partners on tariffs so far producing only one heads of agreement for relatively inconsequential changes to trade arrangements with the UK.
Elon Musk, who is opposed to the tariffs, having just departed the White House and his role as head of the Department of Government Efficiency, has added to the sense of an administration struggling to maintain control of the budget debate.
On Thursday, he urged his 220 million or so followers on his “X” social media platform to “kill” the legislation by contacting their senators and congressional representatives.
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Musk, who earlier this week described the bill as a “disgusting abomination” – a “massive, outrageous, pork-filled Congressional spending bill” – posted that “bankrupting America is not ok!”
There are enough Republicans who agree with Musk, unhappy with the prospect of a $US2.4 trillion addition to the existing $US21 trillion of cumulative deficits the CBO has forecast for the next decade, to force more substantial cost-cutting, if (and it’s a big “if”) they are prepared to defy Trump.
Musk isn’t the only influential figure in American conservative circles to view the prospect of yet another blowout in US deficits and debt, at a point where Trump’s trade policies have injected new dimensions of economic uncertainty and financial markets volatility, as a significant threat to America’s economic stability.
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