Deep Dive
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We are living in interesting times, a turning point in history. Are we entering a dark authoritarian era? Or are we on the brink of a technological golden age? Or the apocalypse? No one really knows, but I'm trying to find out. From New York Times Opinion, I'm Ross Douthat, and on my show, Interesting Times, I'm exploring this strange new world order with the thinkers and leaders giving it shape.
Follow it wherever you get your podcasts. From New York Times, I'm Michael Barbaro. This is The Daily. On this vote, the yeas are 50, the nays are 50. The Senate being evenly divided, the vice president votes in the affirmative. The bill as amended is passed. With a tie-breaking vote from Vice President Vance...
The U.S. Senate has adopted President Trump's giant domestic policy bill, which now heads back to the House of Representatives for a final vote. The legislation is defined by the staggering amount of debt that it's creating: more than $3 trillion. Today, I speak with my colleague, Andy Durin, about how Republicans have rewritten the rules to try to make all of that debt vanish.
And to Colby Smith about why, despite that sleight of hand, the world is less and less convinced that the United States can handle its current debts. It's Wednesday, July 2nd. Andy, welcome to the show. Thanks for having me.
So President Trump's big, beautiful bill, which is now in the hands of the U.S. House of Representatives, does a lot of things. It extends and broadens Trump's 2017 tax cuts. It increases spending on border security, makes deep cuts to Medicaid, slashes food benefits for the poor, all of which we will cover on the show if this becomes law. But
But we wanted to talk to you about its impact on the U.S. national debt, an extremely controversial feature of this bill, because you have been reporting on an effort by congressional Republicans to try to get this legislation over the finish line by making $3 trillion worth of debt basically disappear.
Yes. So this really goes back to what Republicans in both the House and the Senate have wanted to do with the bill this year. And their main goal has been to extend a series of tax cuts that Republicans first passed in 2017. Many of them are expiring this year, and they want to make those tax cuts permanent. And so Senate Republicans in their bill, they use for the first time ever what amounts to basically a fiscal magic math to try and make the tax cut work.
Fiscal magic math. Just explain that. So Republicans had a problem in their quest to make the 2017 Trump tax cuts permanent.
And that problem was that the process they're using to pass legislation this year called reconciliation has not historically allowed lawmakers to do something like that and comply with reconciliation's rules. What about reconciliation, which, as we know now, is the filibuster proof process of passing legislation with a simple majority? What about reconciliation would make it impossible to extend tax cuts permanently?
So reconciliation was originally designed as a policy tool that was aimed at reducing deficits over time and making the fiscal situation of the country better. And so one of the rules that lawmakers agreed to for using this process is that when you pass a bill through reconciliation, you can't increase the debt.
for more than 10 years. So in the first 10 years after the bill passes, you know, maybe the budget takes a hit. But 11 years later, the fiscal picture has to start to improve or not change compared to what people were expecting before the bill.
And this rule around adding to the debt in the long term has been a really important rule in Congress for a long time, where when lawmakers in both parties have used reconciliation to try and achieve their more partisan goals like Republicans are now, they have obeyed this rule and they've scheduled things to expire before what's called the budget window or the 10-year maximum that you're allowed to go under this process.
And obviously, permanent tax cuts exceed a 10-year window. So like you said, Republicans clearly have a problem here.
Yes, they clearly have a problem here. And, you know, there are other ways they could have gotten around this. One would have been to try and pay for these tax cuts in perpetuity. But that would be extremely expensive and difficult. They've already had a lot of trouble cutting a much more modest amount of spending in this bill. And so what they came up with instead is an accounting gimmick that basically makes it seem like making these tax cuts permanent does not add to the debt over time.
Okay, so walk us through this budget gimmick. So essentially what Senate Republicans are arguing is that because these tax cuts exist now, they've been, you know, the law of the land since 2017, right?
that continuing what's in the budget now is not a new cost, essentially, that, you know, where they're preserving the status quo, the United States has had these tax cuts for years. And so why should we consider it a new tax cut to continue them? And why should we say that that costs, you know, what is estimated to be $3.8 trillion over 10 years to simply preserve the status quo? And so what they're saying is that because these tax cuts exist now, it's not a new hit to the budget to continue them.
It's akin to saying, oh, I went on vacation for a week and I was spending, I was really kind of having a great time spending an extra $1,000 a day on drinks and hotels and jet skis and all sorts of fun stuff. And then...
When I come back from vacation saying, well, I've been spending an extra thousand dollars a day for a week. And so why don't I just keep spending an extra thousand dollars a day? This isn't really a change in my fiscal situation, my financial situation, because I've been doing this. Even though when you plan the vacation, it was only supposed to be a week long and then you come and then you were supposed to go back to what had been your previous spending habits, essentially. And so
They're arguing that these tax cuts that they made temporary to begin with, that they only planned for for a certain period of time, actually should be something that everyone assumes and that they assume and should be treated as something that was always going to be part of the country's fiscal future.
Got it. So basically, in this metaphor, Republicans want the United States to stay on a tax-cutting vacation forever and not acknowledge that our costs have now changed. Yes, that's exactly right. And they do this despite the fact that when you come back from vacation and keep spending an extra $1,000 a day, that does materially change your budget. And so...
This accounting description, the way that they think about it, the way that they talk about it, makes it look one way, but in fact, the United States will have to borrow a lot more money to cover the cost of this tax cut forever. Is this kind of creative accounting, this kind of gimmick, actually allowed? My sense is that the Senate has a whole system that sits in judgment of such things. Literally a parliamentarian, right, who looks at these things and says, you can't do that. That's a gimmick.
Yes. So usually that is how this works, where, you know, through the special reconciliation process, the parliamentarian, she is asked to give her advice or her view on whether X, Y, Z policy, X, Y, Z measure can be passed through the process. In this case, Republicans didn't do that.
because their entire bill basically depended on this accounting assumption, they never went to the parliamentarian and explicitly asked her, can we do this? They didn't want to be told no. They didn't want to risk it, basically. I mean, we don't know what she would have said because she was never explicitly asked. Democrats certainly think that she would not have smiled upon this accounting gimmick.
But they just never asked. And then instead what happened is they went directly to the floor of the Senate and through some kind of parliamentary maneuvering, John Thune, the Senate majority leader and a Republican, said that we can do this. We're allowed to use whatever accounting standard we want. A Republican senator who was presiding over the chamber at that point said, sure, yes, you can. The debate and eventual voting on the big, beautiful bill has begun. Hallelujah.
And at that point, Lindsey Graham, who's the Senate budget chairman, started to defend this idea. I'm setting the numbers. The parliamentarian said, that's my job as budget chairman. Basically, what he was doing was relying on
very obscure elements and provisions in budget law to say, I'm the budget chairman and so I get to decide what things cost. So we're not doing anything sneaky. We actually voted to give me the authority to do this. That I'm in control entirely of how all of these numbers are counted and you guys need to listen to me.
Well, first of all, our bill drives the deficit down, not up. Graham is joined on the Senate floor by other Republicans who think that this accounting gimmick is completely legitimate. One of them was Mike Crapo, the chairman of the Senate Finance Committee. And the bottom line here is very simple.
I think every American, at least 90% of them, intuitively understand that the refusal to let your taxes go up by $4 trillion is not a deficit increase. And he laid out in depth why he thinks that extending these tax cuts is avoiding a tax increase. It shouldn't be considered an additional cost to the budget. Us keeping your money in your pocket is not making you responsible for increasing the deficit.
Democrats protested and asked for a vote, and then Republicans eventually voted to say, yeah, we can do this. And so there was never any formal decision or ruling, as they call it, by the parliamentarian to say, like, yes, this is kosher, no, this is not kosher with reconciliation's rules. And instead, Republicans just went for it. ♪♪
So with this accounting gimmick now baked into this bill officially,
What becomes the cost of this legislation to the national debt? Yeah. So Republicans have asked Washington's official scorekeepers, the nerds over at the Congressional Budget Office and the Joint Committee on Taxation, to analyze legislation according to their preferred accounting standard. And what they found was or what the CBO found was that their bill, rather than adding more than $3 trillion to the debt over
over a decade. By the Republican standard, it would reduce the debt by half a trillion dollars over a decade. So that's obviously a huge difference. Reduces the debt. Reduces the debt. Again, I'm making this gigantic assumption and changing the accounting principles. It goes from increasing the debt dramatically to actually shrinking it, which is obviously a huge change. Hmm.
So given the reality that this gimmick doesn't actually wipe out this debt, but simply changes how we talk about it and how it's accounted for, what do the fiscal hawks inside the Republican Party who have this bill before them have to say about this?
So some of them have been very opposed to this before. There have been Republicans in the House who have called this the ultimate budget gimmick, who have really been very critical of thinking about the cost of the bill this way. And that will become very important now as the legislation heads back to the House, where there are
A lot of Republicans who have least made noise about the fact that they think it is too costly. We'll see how that actually pans out when they vote on the House floor. But this is a big deal. It not only is it a problem among Republicans in the short term, but it also kind of fundamentally changes how Congress can shape fiscal policy without having to overcome the filibuster.
And so Democrats have already indicated that they hope to maybe take advantage of this because, you know, being able to change fiscal policy for the long term is a desirable outcome for members of both parties. So that's kind of the future that fiscal hawks are really worried about, because this rule on saying, you know, we can't add to the deficit or add to the debt.
in the long term has been a limiting factor on how much money Congress spends. I mean, obviously, Congress has still not done a great job at managing the nation's finances and the fiscal forecast is pretty dire as it is. But this has been some kind of break on how much lawmakers do when it's not a bipartisan bill. And that break is now gone. Yes, that's exactly right.
And there's concern that inevitably when either Democrats control Congress again or even just Republicans and they're trying to make their own fiscal math work to accomplish whatever big policy priority they have, they'll just resort to this accounting gimmick and that could just blow out the debt forever. Well, Andy, thank you very much. Thanks for having me.
After the break, my colleague Colby Smith on why this time the financial world is so worried about what more debt could mean for America's financial future. We'll be right back. I'm Helene Cooper. I cover the U.S. military for The New York Times.
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by using this budgetary sleight of hand. And we now turn to you to understand whether this level of debt from this bill and the precedent it sets for a lot more debt in the future is something that we should be worried about. Because if we're being honest, the United States has been living with very high levels of debt for a very long time. So does this moment feel different? And if it does, why does it feel different?
So there are a couple of things about this moment that are different. First of all, the reality is that the sheer amount of debt that we're talking about here is enormous. So our total debt is around $28 trillion, or roughly 100% of GDP. And that's before we're adding another $3 trillion or so to the deficit with this bill. And just to be clear, because that's a really interesting sentence you just used, our debt
is the equivalent of our entire gross domestic product, what we put out.
Yeah, it's incredibly high. And it's at a level that we haven't really seen since World War II. So it's an enormous sum. And so when we think about the scale of it, that's one point of concern. But I think the major thing that's going on here is that there's a worry that the environment in which we're accumulating this much debt is just riskier than it has been in the past. Well, just explain this notion that the environment is riskier. Because in this country, we have a habit—
of just borrowing more and more money. And I've learned through the many conversations we've had on this show with many of our colleagues from the business desk that we do this through a time-tested system, right? Like, we have lots of debt, and we ask people to buy U.S. Treasury bonds in order to finance it. And the system works pretty well, which is why so far, despite everyone saying that debt is a problem, it doesn't ever quite seem to be a problem.
a problem. Right. So the system is as tried and true as it gets. In buying a treasury bond, the government is promising to pay you back over an allotted period of time with interest.
And investors have always felt confident in the government's ability to pay back its debts. And the confidence in that system offered the government a lot of benefits. And one of those benefits is an ability to borrow quite cheaply and continue to finance spending at relatively low interest rates.
But now what we're starting to see are some questions being raised about the properties underpinning the Treasury market and whether investors can continue to feel confident to lend to the United States.
Well, just explain that. What about those underpinnings is now in doubt? The source of the strife is not necessarily that the U.S. is about to, let's say, default on its debt. It's that its role in the global financial system as this kind of beacon of stability is starting to be challenged. And I think that that started to come up in a number of ways in the last couple of months.
— The clearest sign of this was in the immediate aftermath of what President Trump dubbed "Liberation Day," when he announced massive tariffs on virtually all of the country's trading partners.
So we saw this big sell-off in U.S. government debt. And I think what was so notable and worrisome about that phenomenon was the fact that typically in times of turmoil, investors, they move out of riskier assets and they flood into lower risk, safer havens. Like treasury bonds. Exactly, like treasury bonds. But that's not what happened. People didn't flock to U.S. government debt. They instead sold it.
And so that just really kind of exacerbated concerns that are already starting to percolate that investors were starting to kind of second guess whether or not it made sense to increase their exposure to the U.S. I think one of the most telling examples of this
was when we heard from Japan's finance minister in early May, so right around some of this turmoil, that the country was considering selling its holdings of U.S. treasuries. Now, Japan is the largest foreign holders of U.S. debt. So even like the Vegas hint that it would even consider doing this, I think, sent shockwaves across the financial system. Now, of course, this wasn't a threat that they like followed through on. But the fact
that he talked about it as a card that could potentially be put on the table was really disconcerting. The message was quite clearly the world's confidence in U.S. treasuries, in this tool, importantly for our conversation, that finances our debt has been shaken.
Right. Absolutely. And I think we saw this across the board. Like it wasn't just with Japan. I remember going down to this big international conference of global financial leaders down in Washington, D.C. in late April. And on the sidelines of this like big global event, investors, economists, policymakers, everyone was talking about whether or not we should be thinking about the U.S. anymore as a safe haven. Mm hmm.
Now, we're not at that point yet, but the concern is that once those questions start being raised, you can easily see a scenario where that doubt starts feeding on itself and creating a situation in which confidence in the U.S. really starts to waver.
Well, just explain that. What happens if people around the world start to prefer European bonds to American government bonds, and suddenly it becomes harder for the U.S. to convince people to finance our debt? Just walk us through what that starts to look like.
So the fear here is that over time, it's just going to mean that it's just much more expensive for us to finance our debt load. You know, in the past, when we needed to borrow, we could do it more cheaply. We saw this in the aftermath of the pandemic, when the Trump administration and the Biden administration stepped in to shore up the economy. We saw it in the aftermath of the global financial crisis as well.
There were all kinds of investors who were clamoring to hold our debt. That meant demand was really, really strong. And so the government could finance those rescue packages quite cheaply. Now, the concern here is that if the landscape gets much more competitive and investors have multiple places to put their money, it could well mean that demand for U.S. assets in particular reduces, and that is going to require a lot of money.
And that's where the Republican bill, you know, starts to really raise anxiety levels here because we're already spending a significant amount on debt servicing costs. We're doing so more than we are spending on defense, on Medicaid, on Medicare. And what this bill is going to do is risk pushing those costs.
ever higher. Some of the estimates that I hear is that one in every $4 now is going to go towards paying down the debt, and that's an enormous amount. Mm-hmm. And so suddenly, if we need to pay people even more back...
as a return for investing in our debt, then that problem just compounds and compounds, and suddenly we're spending even more money creating more debt just to pay for our debt.
Yeah, absolutely. I mean, like, the way this is usually described is like a doom loop that, like, feeds on itself. And that's a situation that can get out of hand quite quickly. So we're by no means at this point. Right. But I think that if you ask people their nightmare scenario, that is what it looks like. Okay, well, what does a doom loop mean?
if it were to come to pass, mean for you, for me, for the average American? So the more money that's being spent on servicing the debt, the more we run the risk of this problem of crowding out, in which the government is spending more on servicing costs than they are on other federal spending programs that help everyday Americans.
I think the other major impact for the average American is that it'll get more expensive for themselves to borrow if it gets more expensive for the government to borrow. And so the way this works is that the rate at which the government borrows directly impacts the interest rates that are used to set things like mortgages, auto loans, things like that. So if...
let's say, the 10-year Treasury bond, for instance, rises. That can set off a ricochet across the entire U.S. government debt market. And that will then mean that, you know, when you try to buy a house and you try to borrow to buy that house, that mortgage is just going to be that much more expensive. So these are the various channels in which Americans are directly affected by these debt levels. So you're really talking about a kind of double...
whammy in which creating more debt for the U.S., which this bill very clearly does, budgetary sleight of hand aside, means that the government needs to spend more taxpayer money to finance that debt, which is in and of itself a very big deal. And consumers, as a result,
may end up needing to spend more money to just live their everyday lives in any way that it interacts with borrowing. That's exactly right. And I think adding to the worries here is the fact that there's no acute economic need to do this at the current moment. So investors are used to seeing surging deficits, let's say, when there are wars or recessions. Or pandemics. Or pandemics, right. That's a time when people want their government to kind of spend to support the economy, to step in to stave off a crisis.
But what's happening right now is that this big increase in the debt is taking place when things look relatively solid. And I think that's why a lot of economists and budget hawks are raising alarm bells here, because if you're not going to kind of tighten your belts in good times, what does that suggest about what happens during bad times, for instance? Right. You're saying optional debt creation, which is what we're doing right now with this bill, may constrain investors.
debt creation that's not optional because we're in an emergency and we need to borrow. And it's going to be that much harder. Exactly. The concern here is that we're setting ourselves up for a situation in which the government is just less able to come to the rescue when we need it most.
And that's something that I think is weighing on economists at this moment when they look at this bill and they say, this is eating up any extra capacity that we already didn't have at a time when we don't need to. So when the next crisis comes, when the next slowdown happens, the government could easily be just more hamstrung than otherwise would have been the case. Well, Colby, thank you very much. Thank you. We'll be right back.
Here's what else you need to know today. On Tuesday, the final results of the Democratic primary for New York City mayor showed that Zoran Mamdani, the 33-year-old Democratic socialist, won with 56% of the vote, defeating former Governor Andrew Cuomo by 12 points. In a likely sign of attacks to come,
President Trump suggested that Mamdani was a communist who was in the U.S. illegally and in response to a question from a reporter suggested that he could have Mamdani imprisoned if he defies federal immigration officials. Well then we'll have to arrest him. Look,
We don't need a communist in this country, but if we have one, I'm going to be watching over him very carefully on behalf of the nation. We send him money. Mamdani called Trump's remarks an attack on democracy and declared, quote, we will not accept this intimidation. Today's episode was produced by Rob Zipko, Ricky Nowetzki and Muj Zadie.
It was edited by Mark George, contains original music by Pat McCusker, Diane Wong, and Marion Lozano, and was engineered by Alyssa Moxley. Our theme music is by Jim Brunberg and Van Lansfranck of Wonderly. That's it for The Daily. I'm Michael Barbaro. See you tomorrow. ♪