House Reconciliation Bill Would Massively Increase Near-Term Deficits

The House is continuing to mark up its reconciliation legislation, which we estimate would add $3.3 trillion to the debt including interest or $5.2 trillion if its temporary provisions are made permanent. In part because new borrowing is front-loaded and offsets are back-loaded, the bill would add massively to near-term deficits.

We estimate the House bill would boost the FY 2027 deficit – the deficit in the first year the policies would be fully in effect – by nearly $600 billion, or 1.8 percent of Gross Domestic Product. That’s the net effect of roughly $770 billion of new borrowing and only $180 billion of offsets.

The deficits boost represents a one-third increase in total projected deficits from $1.7 to $2.3 trillion – and a near doubling of the primary (non-interest) deficit.

The legislation’s spending and tax cuts are quite front-loaded, while offsets are back-loaded. We estimate about 55 percent of the gross deficit increases – $2.8 trillion – would take place in the first half of the budget window. Meanwhile only 40 percent of the offsets – $970 billion – would accumulate over that period. As a result, 70 percent of the non-interest borrowing would occur in the first five years.

The tax cut and spending increase provisions are front-loaded, in large part, due to the use of “arbitrary expirations” designed to limit reported costs. A number of provisions – including the enhanced Child Tax Credit and standard deduction, no tax on tips and overtime, 100 percent bonus depreciation for equipment, and new ‘MAGA accounts’ – are scheduled to expire in 2028 or 2029. The bill also relies on one-time appropriations for defense and immigration, which must be obligated by 2029. And finally, the bill includes a large number of retroactive provisions that provide a one-time windfall for activities already undertaken.

Meanwhile, many of the offsets don’t begin or ramp up until late in the budget window. Medicaid work requirements, for example, save $300 billion through 2034 but do not take effect until 2028. In addition, while some of the Inflation Reduction Act (IRA) energy credits are repealed at the end of 2025, the most expensive ones only begin phasing out in a few years with some restrictions taking effect sooner. And the Supplemental Nutrition Assistance Program (SNAP) state matching fund requirements do not start until 2028. 

As a result of this mismatch and the sheer size of the bill’s deficit increases, the House bill would add to the deficit in every single year – with the possible exception of 2025 – even after the temporary provisions expire. But the largest deficit increases will take place early in the budget window. 

This additional near-term borrowing could stoke inflation and push up interest rates. And it may continue in the future if policymakers extend expiring provisions and perhaps cancel some of the offsets.

Lawmakers should remove the arbitrary expirations, reduce the amount of tax cuts and spending increases, and/or increase the offsets to ensure that this package does not add to the deficit and worsen our already fraught fiscal situation.