GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt

Economic

Summary:

Republican tax cuts are officially estimated to cost $3.8 trillion over 10 years but could be much higher if temporary provisions are extended. This raises concerns over rising deficits and government debt.

The cost of Republican lawmakers’ draft plan for sweeping tax cuts weighed in at $3.8 trillion over the next 10 years in one official estimate. The reality is likely much higher, thanks to the use of budget and political tools designed to minimize the appearance of the fiscal hit, according to independent analysts including former Republican staff members.

Budget experts typically calculate the cost of legislation, or “score,” over a 10-year period. But President Donald Trump’s headline-grabbing pledges to remove taxes on tips and overtime are supposed to expire after just four years in the latest bill. That has effect of downplaying the potential revenue loss if the measures are extended — which Congress has a tendency to do.

It could also raise concerns among investors and economists about the scale of future borrowing needs for a government whose debt load is on track to surpass 118% of the economy’s size by 2035, potentially undermining confidence in US securities. GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_1

GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_1

Republicans are quick to defend the size of the tax cuts, saying they will grow the economy and, with Trump’s tariff policies, bring in trillions of dollars of added revenue to federal coffers — along with savings found by the Elon Musk-led Department of Government Efficiency.

Speaker Mike Johnson is aiming to secure House approval later this month for a bill that, along with providing Trump’s new benefits, makes permanent the lower income-tax rates set in Trump’s 2017 package. Those rates had been scheduled to expire at the end of this year — something that had limited the official cost of that package in Trump’s first term.

Analysis by the Committee for a Responsible Federal Budget, a centrist fiscal watchdog group, shows that extending the new benefits for a full decade would take the cumulative increase in the deficit to $5.2 trillion. That compares with an official congressional Joint Committee on Taxation tally of $3.8 trillion. After factoring in spending cuts in Medicaid and other items, the CRFB estimated the deficit boost at $3.3 trillion. GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_2

GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_2

While both Republicans and Democrats have previously used budget tricks to portray a better fiscal impact, the scale of the potentially hidden effects of the GOP tax package is striking, said Marc Goldwein, senior policy director at the CRFB.

“The entire reason they did this temporarily was to reduce this cost,” Goldwein said. “They are basically trying to hide” the additional costs, he said.

Trump and his cabinet members have argued that official scoring fails to capture hundreds of billions of dollars of future revenue from increased tariffs. They also claim that the administration’s deregulatory agenda will lift burdens on businesses, boosting growth.

Jason Smith, the GOP chair of the tax-writing House Ways and Means Committee, has blasted Democrats opposing the bill for effectively seeking “the largest tax hike in American history.”

Growth Outlook

The combination of Trump’s tax cuts, savings and de-regulation means a more likely deficit impact of below $2 trillion over the coming decade, Richard Stern, a fiscal expert at the Heritage Foundation, a conservative-leaning think tank.

“The spending cuts are not going to hold back growth — they are not cutting critical services or going to hold back business flows,” Stern said. “These are cutting largely wasteful and fraudulent spending.” GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_3

GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_3

Even without adding to US borrowing needs, the existing run rate has the federal debt burden on a trajectory that most observers, including Treasury Secretary Scott Bessent, view as unsustainable. Annual deficits have been clocking near $2 trillion in recent years, or more than 6% of gross domestic product.

The debt-to-GDP ratio is heading for a record high in just four years’ time, according to the nonpartisan Congressional Budget Office.

Trump has dubbed the legislation, which includes a slew of spending reductions yet to be specified in detail, “one big, beautiful bill.” Barclays Plc economists on Wednesday titled a research note on the topic, “One big, beautiful” deficit. “Investors in longer US bonds are unlikely to be happy,” they wrote.

By the calculation of G. William Hoagland at the Bipartisan Policy Center, sunsetting many Trump’s new benefits after four years, the tax bill saved roughly $500 billion.

The draft bill has a deduction for senior citizens sunsetting in four years, with an expanded child tax credit of $2,500 ending Dec. 31, 2028.

“This is an old trick the tax writers do,” Hoagland, a former congressional Republican staff member, said of phasing out a benefit. “From a fiscal perspective, it underestimates the real cost of these bills."

Rohit Kumar, national tax office co-leader at PricewaterhouseCoopers LLP and a former top Senate policy aide, said that if provisions prove “super popular, whoever’s running for president in 2028 can run on renewing them.”

The other way lawmakers tried to cut the bill’s cost was to was “to put the guardrails around who qualifies,” Kumar added. This included adding income limits for a new deduction aimed at retirees, as well as detailing which industries were eligible for the no-tax-on-tips provision.

Ultimately, the four year time line for when the tax cuts expire will only stoke uncertainty for both businesses and individuals, said Goldwein at the CRFB.

“How can you plan around a tax code when large parts of it expire in four years,” he said.

Source: Bloomberg

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Adam

Economic

U.S. consumers spent slightly more at retail stores last month after ramping up their shopping in March to get ahead of tariffs.

Sales at retail stores and restaurants rose just 0.1% in April from March, the Commerce Department said Thursday. That is much lower than the previous month's 1.7% gain, which reflected a surge in car sales as consumers sought to get ahead of President Trump's 25% duty on auto imports that went into effect this month.

Last month's tiny increase after the March surge makes it harder to get a clear read on consumer spending trends and reflects the ongoing turmoil and uncertainty in the economy in the wake of Trump’s stop-and-go tariff policies. Many publicly-traded companies have withdrawn or held off on the traditional practice of forecasting their revenues and earnings for the rest of this year because the economic landscape has become so chaotic.

Meanwhile, Americans are increasingly gloomy about the economy’s prospects, according to sentiment surveys.

In April, sales were flat or down for many retailers: They plunged 2.5% at sporting goods stores, which saw prices jump last month, according to the government's inflation report earlier this week. Sales dropped 0.4% at clothing stores, while they ticked down 0.2% at health and personal care stores and slipped 0.1% at auto dealers.

Gas station sales dropped 0.5%, even as prices declined 0.1%. The figures aren't adjusted for price changes.

Trump imposed sky-high tariffs on imports from China last month that fueled fears of a recession, higher inflation, and even the specter of empty shelves by the winter holidays. But on Monday the U.S. and China announced a deal that sharply reduced the duties, at least partly assuaging those concerns.

Retailers still face a lot of uncertainty around tariffs and how shoppers will react to higher prices after several years of sharply rising costs.

A government report, released Tuesday, showed that inflation cooled for the third straight month in April, though economists and many business owners expect inflation will climb by this summer.

Trump had imposed massive 145% import taxes on Chinese goods last month, thought they were reduced to 30% for the next 90 days in a deal announced Monday. China reduced its retaliatory duties to 10% from 125%.

Also Thursday, retail giant Walmart said its sales grew at a solid pace in the quarter ended April 30, as their customers stepped up purchases of groceries, toys, automotive goods and kid’s clothes. Yet profits slipped and CEO Doug McMillon said the company would soon raise prices to offset the impact of tariffs.

Source: finance.yahoo

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Warren Takunda

Economic

The faster-than-expected UK growth in the first three months of the year is welcome news for a Labour government desperate to make good on its promise of kickstarting the economy.

Under siege from Nigel Farage’s Reform and under pressure from its own MPs over tax and spend, Labour will now point to the 0.7% increase in GDP over the first quarter as evidence the hard yards are starting to pay off.

It follows two sickly quarters after Labour came to power last year, shouting about its terrible economic inheritance. GDP growth was zero in July-September 2024, and only 0.1% in the final three months of the year.

The Office for National Statistics said the strongest impetus for growth in the first quarter of 2025 came from the services sector, where there was a 0.7% increase in output, although manufacturing also contributed positively. Construction, which Labour is relying on for 1.5m new homes, was flat.

It is tempting to see these relatively upbeat figures as a “before” picture – a snapshot of the UK economy before Donald Trump’s trade tariffs were announced on his “liberation day” at the start of last month. Indeed, some analysts are warning that businesses may have pulled activity forward into the first quarter to get ahead of the looming tariff blitz.

However, the US-China deal earlier this week has made the trade picture markedly less scary. Even before that, the Bank of England estimated the impact on UK growth would be a manageable 0.3% over three years – while lower commodity prices would help to bear down on inflation.

Of course, Trump’s erratic approach means all that could change in a single press conference. But a world with 30% total US tariffs on China – and 10% on the UK after negotiations with the White House – should be more manageable than one where the world’s two largest economic powers are effectively operating a trade embargo.

Meanwhile, Reeves’s controversial £25bn employer national insurance contributions (NICs) rise only came into force in April, after the data in Thursday’s release was collected. However, if the policy were going to lead to an abrupt wave of redundancies, it seems likely these would have started to show up more clearly already in surveys of the jobs market.

Recent labour market figures do show a marked slowdown, but one that was already well under way. The NICs change is likely to show up in some combination of weaker wage growth, higher prices and slower hiring in the coming months – but so far at least there is little sign that this is likely to tip into the employment crisis of which some business groups warned.

It is also worth recalling that Reeves’s planned public spending splurge for the coming year was expected to boost economic growth but does not yet appear to have shown up, so that is a potential source of upside ahead. Last Thursday’s interest rate cut should be another prop for demand.

There are ample reasons to be wary about the growth picture for the coming months, with forward-looking surveys of business and consumer confidence pointing in the wrong direction.

But looking at the latest GDP data after a bruising month or two, Rachel Reeves can rightly allow herself a few moments of optimism.

Source: Theguardian

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Adam

Economic

The number of Americans filing new applications for unemployment benefits was unchanged last week, but job opportunities are becoming more scarce for those out of work as economic uncertainty from tariffs discourages businesses from boosting hiring.

Initial claims for state unemployment benefits held steady at a seasonally adjusted 229,000 for the week ended May 10, the Labor Department said on Thursday. Economists polled by Reuters had forecast 229,000 claims for the latest week.

Claims have moved in a 205,000-243,000 range this year, consistent with a historically low level of layoffs.

Companies have been hanging on to their workers following difficulties finding labor during and after the COVID-19 pandemic. President Donald Trump's on-and-off again tariffs have created an uncertain economic environment, resulting in major companies from airlines to motor vehicle manufacturers

pulling their 2025 financial forecasts.

A National Federation of Independent Business survey this week showed the share of small businesses reporting job openings they could not fill dropped in April to the lowest level since January 2021.

Though the United States and China struck a 90-day truce in their trade war over the weekend, slashing tariffs on imports, uncertainty remained over what happens thereafter. A 10% blanket duty on almost all imports into the United States stayed in place as did sectoral taxes.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 9,000 to a seasonally adjusted 1.881 million during the week ending May 3, the claims report showed. That aligns with a surge in the median duration of unemployment to 10.4 weeks in April from 9.8 weeks in March.

Following the reduction of the Chinese imports duty to 30% from 145% for a 90-day period, economists trimmed their estimates for unemployment this year. Goldman Sachs now sees the unemployment rate rising to 4.5% in December, down from 4.7% previously. The jobless rate was at 4.2% in April.

Source: finance.yahoo

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Michelle

Economic

Forex

In economic news, the number of Initial Jobless Claims, a key indicator of the health of the U.S. labor market, remained unchanged in the latest report. The actual figure came in at 229K, matching both the forecasted and the previous numbers.

This measure represents the number of individuals who have filed for unemployment insurance for the first time during the past week. It is one of the earliest pieces of U.S. economic data available, providing a timely snapshot of employment trends. However, its market impact can fluctuate from week to week.

The actual figure of 229K jobless claims was in line with the forecasted number. Economists’ predictions were spot on, indicating a stable labor market. The fact that the actual number matched the forecast suggests that there were no major surprises in the job market, which is typically viewed as a positive sign by investors.

In comparison to the previous figure, the number of initial jobless claims also remained steady at 229K. This consistency suggests that the labor market is neither improving nor deteriorating significantly. It provides a sense of stability, which can be reassuring for businesses and investors alike.

The stability in Initial Jobless Claims is generally seen as a bullish sign for the USD. A higher than expected reading would have been taken as negative or bearish for the USD, while a lower than expected reading would have been seen as positive or bullish. In this case, the matching figures indicate a steady, predictable labor market, which can be beneficial for the currency.

In conclusion, the latest Initial Jobless Claims data shows a stable U.S. labor market, with the number of new unemployment insurance filings remaining unchanged. This consistency, which matches both the forecasted and previous figures, suggests a steady economic climate and could be seen as a positive sign for the USD.

Source: Investing

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Glendon

Forex

Economic

Fed's Powell: Strategy Around Both Jobs And Inflation Needs To Be Reconsidered_1

U.S. Federal Reserve officials feel they need to reconsider the key elements around both jobs and inflation in their current approach to monetary policy given the inflation experience of the last few years and the possibility that supply shocks and the associated price increases may become more frequent in the years ahead, Fed chair Jerome Powell said Thursday.

"We may be entering a period of more frequent, and potentially more persistent, supply shocks—a difficult challenge for the economy and for central banks," Powell said in opening remarks at a two-day conference reconsidering the Fed's current approach to monetary policy, adopted in 2020 as the economy was still scarred by the pandemic.

"The economic environment has changed significantly since 2020, and our review will reflect our assessment of those changes," Powell said.

Powell did not focus on current monetary policy or the economic outlook, though he did say he expected April personal consumption expenditures price inflation to have fallen to 2.2% -- a tepid reading but still likely not reflecting coming tariff-driven price increases.

Still that reflects a "historically unusual result" of disinflation without major damage to the economy, a "soft landing" that did take place under the Fed's current strategy.

Five years ago the Fed recast its approach to allow more room for lower unemployment rates and pledged to use periods of high inflation to offset years in which inflation was weak, a common occurrence from 2010 to 2019.

The inflation that took off after that, and the emerging state of the global economy, means that approach may need a rethink, Powell said.

"In our discussions so far, participants have indicated that

they thought it would be appropriate to reconsider the language around shortfalls" of employment, a change adopted so the Fed would not consider a low unemployment rate in itself a sign of inflation risk, Powell said. "At our meeting last week, we had a similar take on average inflation targeting. We will ensure that our new consensus statement is robust to a wide range of economic environments and developments."

His comments point to possibly extensive revisions to a strategy that had been viewed at its inception as a major shift for the Fed, with a willingness to take more risks in favor of a stronger job market and a willingness to tolerate higher inflation after periods of weakness.

But "the idea of an intentional, moderate overshoot proved irrelevant to our policy discussions and has remained so through today" following the near double-digit inflation that occurred during the pandemic reopening, Powell said.

Source: Yahoo Finance

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Warren Takunda

Stocks

Wall Street veered lower before the opening bell Thursday and oil prices fell more than $2 a barrel as optimism over a possible U.S.-Iran nuclear deal rose.

Futures for the S&P 500 and Dow Jones Industrial Average each fell 0.4%. Nasdaq futures dipped 0.6%.

President Donald Trump, visiting Qatar as part of a three-country Middle East tour, has urged the nation to use its influence with Iran to persuade its leadership to dial back its rapidly advancing nuclear program. A deal would help pave the way to ease sanctions against Tehran.

U.S. benchmark crude oil lost $2.37 to $60.78 per barrel. Brent crude, the international standard, gave up $2.32 to $63.70 per barrel.

Oil prices surged early this week after China and the U.S. announced an agreement to scale back painfully high tariffs each has imposed on the other for 90 days. But they’ve since retreated after the U.S. Energy Administration reported relatively high crude oil stockpiles that could lead to an oversupply.

In equities markets, Walmart shares rose 2.2% after it reported strong sales but a decline in first quarter profit, and said it has to raise prices due to higher costs from tariffs.

Like many other U.S. companies, Walmart did not issue a profit outlook for the quarter because of the chaotic environment around rapidly changing U.S. trade policy. The company maintained its full-year guidance issued in February.

Foot Locker shares nearly doubled after Dick’s Sporting Goods said it was buying the struggling footwear chain for about $2.4 billion. It’s the second buyout of a major footwear company in as many weeks as business leaders struggle with uncertainty over how Trump’s tariffs will impact companies that make many of their products overseas.

Last week Skechers announced that it was being taken private by 3G Capital for $9 billion.

Dick’s said Thursday that it expects to run Foot Locker as a standalone unit and keep the Foot Locker brands, which include Kids Foot Locker, Champs Sports, WSS and the Japanese sneaker brand atmos.

Foot Locker shares soared more than 80% to $23.57 before the bell. Dick’s fell 8.5%.

Elsewhere, China moved to reverse some of its “non-tariff” measures against the U.S. as agreed with Washington in their temporary trade war cease-fire, while demanding that the U.S. side “immediately correct its wrong practices.”

A Chinese Commerce Ministry spokesperson accused the Trump administration of violating world trade rules by announcing that use of Ascend computer chips made by China’s Huawei Technologies violates U.S. export controls.

Japan’s Nikkei 225 index dropped 1% to 37,775.51. Computer chip-related stocks were among the biggest decliners, with Disco Corp. falling 3.2% and Advantest down 1.1%.

Hong Kong’s Hang Seng dropped 0.8% to 23,453.16, while the Shanghai Composite index lost 0.7% to 3,380.82. Taiwan’s Taiex fell 0.2%, while India’s Sensex rebounded to gain 1.6%.

In Australia, the S&P/ASX 200 edged 0.2% higher to 8,297.50. South Korea’s Kospi gave up 0.7% to 2,621.36.

European markets are mixed at midday with Germany’s DAX shedding 0.1%, while the CAC 40 in Paris fell 0.2%. Britain’s FTSE 100 was up 0.3%.

On Thursday, the government will release its April report for inflation at the wholesale level, as well as for retail sales and weekly jobless claims.

The latest retail data is expected to reflect a meager 0.2% sales increase in April, down significantly from a 1.4% gain the previous month.

The stock market has been relatively steady since surging Monday after the U.S. and China announced a 90-day pause in their trade war. The market gained more ground on Tuesday after the government reported that inflation unexpectedly cooled across the country in April.

Trump has delayed a large swath of his most severe tariffs against America’s trading partners, but some import taxes remain in place. Uncertainty over the path ahead continues to hang over businesses and consumers. The on-again-off-again nature of Trump’s trade policy has left companies reluctant to make plans about investment and hiring and consumers nervous about spending.

Businesses continue to trim or withdraw their financial forecasts as they face unpredictable trade policy and cautious consumers.

More than 90% of companies in the S&P 500 have reported earnings for their latest quarter and most reported better-than-expected earnings. But they have cut or scrapped forecasts for the current quarter and even the full year.