IMF warns that Trump's tax bill will make debt reduction difficult in the medium term

The International Monetary Fund (IMF) has warned that President Trump’s tax bill, now nearing final approval, could make it more difficult to reduce the US fiscal deficit and national debt in the coming years.

Speaking at a briefing in Washington, IMF spokeswoman Julie Kozack said the proposed legislation appears to run counter to efforts aimed at curbing federal debt over the medium term.

Kozack emphasized that initiating deficit reduction sooner would allow for a more gradual and manageable path toward fiscal sustainability.

The IMF examines Trump’s bill and its potential impact on the US economy

The IMF, which is responsible for keeping an eye on the global economy, has repeatedly stated that the US should lower public borrowing over time, Kozack said.

To achieve this, the IMF advised the country to effectively cut down debts compared to its gross domestic product, a widely used measure to assess debt sustainability.

Although the term “Medium term” can be defined in various ways, the IMF, which is based in Washington, frequently refers to a time of five years. Today, the House voted on a Senate bill that, as the Congressional Budget Office reported, will increase the deficit by $3.3 trillion. 

Meanwhile, the IMF is carefully looking into the bill and its potential impact on the US economy, and will release a fresh forecast for the United States and global economy in an update of its World Economic Outlook this month, Kozack said.

Lawmakers eye a financial strategy to make Trump’s 2017 income tax cuts permanent

As for that One Big Beautiful Bill, the Congressional Budget Office (CBO) analysis revealed a drop of $4.5 trillion in revenue and a cut of $1.2 trillion in spending by 2034, compared to what current laws predict. 

The Senate bill, at the request of Republicans, was also estimated to save $507.6 billion over ten years compared to the current policy baseline. 

The lawmakers from the party have aimed to use a financial strategy to make President Donald Trump’s 2017 income tax cuts permanent, claiming that it will not cost anything. 

On Taxation, the Joint Committee estimated that the bill features tax cuts amounting to $4.5 trillion.  

The Republicans are using the current policy baseline in a way that has never been done before to pass their large legislation with just a simple majority during the reconciliation process. 

The cost of a bill is typically measured based on its effect on the federal budget under the current law. However, the Republicans intend to strike a new process by assuming the current policy continues indefinitely.

Chuck Schumer cautions on the effects of adding tens of trillions to the debt

Fiscal conservatives have had a big problem with the bill’s cost. It has faced hurdles in the Senate, where lawmakers have demanded different changes. Several spending cuts in that package have since been updated because they were determined not to have met Senate rules for reconciliation.

The current policy baseline, on the other hand, acts as a way for GOP lawmakers to game out rules that would otherwise limit the bill’s fiscal impact, according to Democrats and some economists. They say this endangers the country’s financial future.

Republicans can use any budget tricks they like to make the numbers look good on paper, said Senate Minority Leader Chuck Schumer. However, he cautioned that one cannot ignore the real-life effects of adding tens of trillions to the debt.

For now, the price tag for the Senate bill exceeds the $2.8 trillion that the Congressional Budget Office had estimated for the House version adopted last month. This calculation also accounts for the economic effects and higher interest rates due to larger debt levels.

The legislation encompasses many of Trump’s economic priorities. In addition to extending the 2017 tax breaks, it would make multiple cuts to the safety net programs, such as Medicaid and the Supplemental Nutrition Assistance Program, or food stamps.

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