The House Republican budget bill is expected to push federal government debt to record levels and harm long-run economic growth, all to fund tax cuts that disproportionately benefit the wealthy. Despite its unprecedented and harmful cuts to health insurance and food assistance for the most vulnerable, the bill passed by House Republicans is expected to increase the federal government debt by about $2.5 trillion over the 10-year budget window, with additional interest costs from this extra borrowing adding more than half a trillion dollars more.
Previous Center for American Progress analysis projected that the bill—if passed by the Senate—could increase the total government debt to nearly 200 percent of gross domestic product (GDP) by 2055. Moreover, the nonpartisan Congressional Budget Office (CBO) found that permanently extending the provisions of the Tax Cuts and Jobs Act of 2017—a core part of the House Republican reconciliation bill if expiring provisions are again extended—would put upward pressure on inflation and interest rates. The CBO also expects the tax breaks would leave Americans poorer in the long run by leading to slower GDP growth and higher interest rates.
New analysis from the Center for American Progress shows how the proposed bill’s effect on the national debt and interest rates could drive up future borrowing costs by thousands for new homeowners and small businesses in each state.
Larger federal deficits lead to higher costs of borrowing for families and businesses
The higher debt from this proposed budget bill would increase borrowing costs for families and businesses throughout the economy. Research has consistently found that increases in the government debt ratio drive up inflation and long-term interest rates, which in turn increases borrowing costs for households and businesses. With greater inflationary pressures, the Federal Reserve increases interest rates, which increases the cost of borrowing across all types of debt.
Based on CBO assumptions, the Budget Lab at Yale modeled a permanent 1 percentage point increase in the primary, or noninterest, deficits as a percentage of GDP, which is roughly equivalent to the expected impact of the Senate’s version of the budget bill and the House-passed bill if expiring provisions are extended. The Budget Lab estimates that this could cost a family $600 more per year in interest on their home loan or a small-business owner $1,000 more per year on a loan in 2030. That $600, in particular, adds up to roughly $18,000 more in total for the typical family buying a house with a 30-year fixed-rate mortgage. Some researchers argue that the CBO’s interest rate estimate is conservative based on recent empirical studies.
$600
Yearly cost of budget bill on families’ home loan interest, according to Budget Lab estimates
$1,000
Yearly cost of budget bill on loan for small-business owners in 2030, according to Budget Lab estimates
Despite reductions in household debt burden relative to the Great Recession, Americans across the country continue to hold significant levels of debt, including traditional 30-year mortgages, consumer or credit card loans, medical debt, and student debt. Center for American Progress analysis of the Federal Reserve’s “Financial Accounts of the United States” finds that total household debt as a share of disposable income was more than 90 percent at the end of 2024.*
Families across the country would pay thousands more for mortgages and loans
Rising federal government debt pushes interest rates across the economy higher, and consumers who need to borrow money for major purchases, such as a home, would face the brunt of higher borrowing costs. Table 1 provides illustrative state-based impacts using average mortgage origination costs and small-business loans by average interest rate in each state. (see Methodology) CAP analysis shows that, on average, the total increase in mortgage interest over the course of a 30-year loan in many states would be roughly equivalent to the cost of a year of in-state college tuition or a reasonably priced used vehicle. In some states where the price of housing is high, these additional costs would exceed $25,000.
For example, a Pennsylvanian who is saving to purchase a home five years from today would pay an additional $17,700 over the course of a 30-year mortgage because of the reconciliation bill’s effect on interest rates. Similarly, a Pennsylvanian looking to take out a typical small-business loan five years from now could expect to pay $600 more per year for a variable-rate loan or $1,000 for a fixed-rate loan. This amounts to an additional $11,250 over the term of an average fixed-rate loan.
Conclusion
Running budget deficits can be an important economic policy tool to respond to economic downturns or to make investments that grow the economy. Yet the House Republican budget bill does neither. Instead of investing in the future, it would rob from future generations by adding to the national debt while providing tax giveaways that disproportionately flow to the wealthy.
The House Republican budget bill’s major debt escalation will come at a cost to American borrowers, including those who will also be hurt by unprecedented cuts to health care and food assistance programs. Raising borrowing costs would needlessly add thousands to the costs of families already struggling to afford a home and small businesses being crushed by the Trump administration’s trade wars.
The authors wish to thank Emily Gee, Bobby Kogan, Lily Roberts, Madeline Shepherd, Michael Negron, Steve Bonitatibus, Beatrice Aronson, Anh Nguyen, Amina Khalique, and Mimla Wardak of the Center for American Progress for their helpful comments and input.
* Authors’ note: Data points are on file with the authors.
Methodology
This analysis uses estimated interest rates modeled by the Budget Lab for the scenario of a permanent 1 percent of GDP increase in the primary deficit, which is in keeping with the CBO estimate of the impact of permanently extending the expiring provisions of the Tax Cuts and Jobs Act. This debt increase is similar in magnitude to expectations for the Senate’s version of the One Big Beautiful Bill Act and to the version passed by House Republicans on May 22, if the expiring provisions in the bill were to be extended.
The Budget Lab found that an increase in the deficit of this magnitude would result in a 23 basis-point increase in the average mortgage interest rate by 2030. This estimate assumes that that the Federal Reserve would respond to higher inflation by raising interest rates.
The CAP authors applied the 23 basis-point increase to state-level average interest rates and average mortgage balances at origination. Data were drawn from the Federal Housing Finance Authority (FHFA) “Public Use Database – Federal Home Loan Bank System.” Average interest rates and mortgage balances were derived from mortgages purchased by Federal Home Loan Banks and reported to the FHFA only. The authors adjusted FHFA 2023 values for inflation using the Consumer Price Index for All Urban Consumers (CPI-U) to present findings in 2024 dollars. And to estimate the total additional interest cost over a lifetime of a 30-year fixed-rate mortgage, they multiplied the annual additional mortgage interest by 30.
For small-business loans, the Budget Lab estimated that the deficit increase would result in a 23 basis-point increase in the average small-business interest rate by 2030. The CAP authors applied the 23 basis points to state-level average interest rates, loan terms, and loan values to determine the additional interest for a typical small-business loan. Data on small-business loans are from the Small Business Administration 7(a) loan program. Average loan values, interest rates, and terms were separately estimated by state for fixed rate and variable rate loans, based on loans approved in 2023 and 2024. Average loan terms ranged from five to 15 years across the states in the dataset, with a national average of 11 years for both fixed and variable loans. Loan values are gross approvals, and 2023 loan values were adjusted for inflation using the CPI-U and presented in 2024 dollars. Average interest rates were calculated based on the initial interest rate.