Wolfe: Trump budget bill "slightly worse for deficits than current policy"

Investing.com - Possible changes to the Senate’s version of President Donald Trump’s massive tax-and-spending package will likely worsen the fiscal position of the U.S., according to analysts at Wolfe Research.

The upper chamber of Congress returned to Washington earlier this week with Republican lawmakers facing the task of placing Trump’s so-called "One Big Beautiful Bill" on his desk for signing by July 4.

However, uncertainty is swirling around the legislation, which was passed by the House of Representatives last month. Disagreements remain among GOP members over the broad contours of the measure, particularly plans for Medicaid coverage.

Some have expressed worries that access to the federal health insurance program for low-income Americans will be limited, although Trump has argued that the proposal would only crack down on waste and fraud.

Still others have noted concerns over the cost of the sweeping legislation. The nonpartisan Congressional Budget Office has estimated that the House’s version would add around $3.8 trillion to the federal government’s $36.2 trillion debt pile over the next decade -- a prospect that has caught the attention of many investors, helping give some recent lift to U.S. Treasury yields.

"This all means higher deficits. To the extent that you’re worried this bill will worsen the U.S. fiscal position, the changes on tap in the Senate make it worse," the Wolfe Research analysts led by Tobin Marcus said in a note to clients on Tuesday. The strategists argued that investors are "gradually coming around to this reality".

But they added that the bill in its current form is "only slightly worse for deficits" than current policy, arguing that the U.S. financial position is "already unsustainable".

"What would really take debt into crisis territory is a sustained rise in interest rates," the analysts warned.

Senate Republicans are reportedly tipped to start rolling out updated texts of the bill from some committees within days, and are keen to work through Medicaid issues by this weekend. Any changes made by the Senate would then need to be approved by the House.

Despite the July 4 target for passing the bill, the Wolfe Research analysts estimated that a final version is not likely to be brought before Trump until "mid-to-late" next month.