What the Interest on Deficit-Funded Tax Legislation Would Cost
Last Updated November 15, 2017
Today the House of Representatives passed the Tax Cuts and Jobs Act, which on its own would add $1.4 trillion to our national debt over the next 10 years. However, the reduction in revenues would also require additional borrowing, thereby boosting interest costs by another $259 billion. As a result, the total cost of the bill is estimated to be $1.7 trillion between 2018 and 2027.
The amount of interest on the House tax bill can be compared with existing spending in the federal budget. For example, that $259 billion is equivalent to nearly half of our annual defense spending and almost a full year of federal support for Income Security programs (which include the Supplemental Nutrition Assistance Program, Supplemental Security Income, family support, and foster care). Or, it could pay for two and a half years of programs for veterans.
Growing interest costs are rapidly becoming a significant factor in our dangerous fiscal outlook. Even without the enactment of any tax legislation, CBO projects that interest payments on the debt will more than quadruple over the next 30 years, climbing from 1.4 percent of GDP in 2017 to 6.2 percent in 2047. In less than a decade, interest costs will rise to be the third largest “program” in the federal budget, trailing only Social Security and Medicare. And by 2047, CBO projects that interest costs alone could be more than twice what the federal government has historically spent on R&D, infrastructure, and education combined.
The impact of rising interest costs on the budget should be a primary factor for lawmakers to consider as they pursue tax reform.
Image credit: Getty Images
Further Reading
What is Stepped-Up Basis on Capital Gains and How Does it Affect the Federal Budget?
The step-up in basis is a provision in tax law that relates to how assets — such as stocks, bonds, or real estate — are valued and taxed after their owner passes away.
Some Tax Provisions Are Expiring in 2025 — Here’s What Experts Think About Them
The TCJA lowered taxes for millions of households and made filing simpler for many — all while making the country’s fiscal outlook worse.
What Is the Carried Interest Loophole, and Why Is It So Difficult to Close?
The treatment of carried interest continues to be one of the most controversial elements of the U.S. tax code.