The Big, Beautiful Bill Act and the deficit: Should I be worried?

There’s a lot of talk about the proposed US government budget with Republicans and the White House heralding the One Big, Beautiful Bill Act as a huge benefit for Americans. But there are also worries about our growing federal deficit. This bill, as approved by the House on May 22nd, is expected to add $2.8 trillion to our deficits over the next 10 years.¹ That’s a lot of money on top of the government’s existing deficit spending.

Should I be worried?

The US government has been running deficits for decades except for a brief period in the late 1990s when it ran a surplus. During COVID, deficits spiked as the feds spent heavily to keep the economy going and then the Tax Cut and Jobs Act passed during the first Trump Administration contributed even more to growing deficits.

Until recently, US government debt has been issued at relatively low cost because interest rates have been very low. But now interest rates are a lot higher. This means the US government now has to pay a lot more to borrow money and that cost is showing up as a larger expense in the federal budget.

Since the end of World War II, US government debt has been considered among the safest and most stable in the world. In addition, the US dollar has been the so-called Reserve Currency. As a result, when a crisis hits—such as a war or a potential collapse of a foreign market—global investors often rush to put their money into US dollar-denominated investments, typically US Treasury securities.

That tendency may be changing.

With the current Administration’s aggressive tariff policies, cuts to foreign aid, and an “America First” approach, some global investors appear to seeking alternatives to investing in the United States. While it is still too early to know for sure, the global attitude towards the US dollar and Treasuries has changed.

In addition, investors are taking note of the rapidly growing US budget deficits. In May, Moody’s Investor Service downgraded US government debt from its highest rating by one step, from Aaa (their highest rating) to Aa1. They were the last major government debt rating agency to cut a rating on US government debt. This is important because investors require higher yields on lower rated debt to compensate them for the higher perceived risk. If yields rise for US

Treasuries, the US government will need to pay more interest when it issues the debt. As the cost of debt increases, it tends to reduce the amount of money available to pay other budget expenditures such as defense, Social Security, Medicare, Medicaid, education, transportation and other US government programs.

Of course, if you are already running a budget deficit, what’s a few dollars more? Well, ‘turns out it’s a lot more.

One way to understand how serious things are is to look at the bond market. Every day investors buy bonds based on the interest rate and how likely it is that the issuer will pay back the bond and interest on time. As the US government borrows more and more money, investors may require higher interest rates or, even stop loaning money to the government altogether. As with any borrower, there are limits on how much one can borrow, but these are unknown and have not been tested with US government debt.

Think about it this way, if you can choose between loaning $10,000 at 4% interest to your friend Larry who is unemployed or loaning to your other friend Linus who is has a full-time job and is rich, who would you loan your money to? I think you know the logical answer. If you loan to Larry, you would likely require a higher interest rate versus loaning to your safer bet, Linus.

Is there any good news?

I’m not sure if it is good news but one needs to remember that the One Big Beautiful Bill Act is still a PROPOSED budget. It’s not final yet.² Under the current reconciliation process for this bill, the House and the Senate must come to an agreement and the bill must meet specific requirements in order to pass with simple majorities in both the House and Senate. With Republicans holding only small majorities in both houses, it will be challenging for them to come to mutual agreement on a finalized bill that will be signed by the President. So far, the Senate has pressed for a bill that creates smaller deficits and bigger cuts to Medicaid than the House bill. We shall see if they can reach agreement by their self-imposed deadline of July 4th. There are no guarantees.

The long view

As a finance professional, I like to see responsible decision-making. This includes not carrying a credit card balance and always spending less than what you earn. In the case of the US government, we like to see spending that is less than revenues. For some time, Republicans and Democrats have found it just too tempting to spend money the government does not have. In addition, both Social Security and Medicare will require increased funding in order to just maintain current benefit levels. Hopefully, Congress will find a way to meet these obligations and also reduce long term deficit spending. But Congress has a way of “kicking the can down the road” especially on tough issues. We may have to wait until a crisis is imminent and Congress has no other choice.

What should I do?

In times of uncertainty, investors often flock to US Treasury securities. But what if there are increasing worries about the US government’s ability to pay its bills? Good questions but I do not believe we are at that moment of crisis.

The US government has incredible authority to impose taxes. It has taxes on personal income, work income, corporate income, other taxes and now tariffs. In addition, it could enact new taxes and fees to pay for services that Americans demand. With one of the strongest economies in the world, the US has a vast economic base to support revenue to provide promised services. It just needs to decide how much to collect and how much to spend. Until the American people demand more responsibility or there is another financial crisis, it appears that Congress will continue to spend more than it takes in. For now, we are not worried but the longer-term direction of deficit spending is a concern.

We’ll be watching the developments of the budget carefully over the next few months. If you have questions about the proposed budget and its potential impact on you, give me a call. I’m here to help. You can schedule a quick call with me by clicking HERE.

Lyman H. Jackson

Lyman@PlanWithFPS.com

617-630-4978

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¹ US Congressional Budget Office, H.R. 1, One Big Beautiful Bill Act – At a Glance, 6/19/25, https://www.cbo.gov/publication/61486

² As of June 20, 2025.

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