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The Republican-led House of Representatives has passed its “One, Big, Beautiful Bill,” but before you dig into the more than 1,000-word tomb, it’s probably better to wait until the Senate puts its imprint on it.

The basic outline is what most expected: the extension of most of the 2017 Tax Cut and Jobs Act (passed under the first Trump Administration), an increase of the state and local tax deduction (SALT) for some, elimination of taxes on tips and overtime pay, an enhanced child tax credit, among other goodies.

Before diving into the cost of these goodies — and the impact on the nation’s finances, we need two definitions:

The deficit is the nation’s revenue (the amount of money that the government takes in), minus the amount of money that the government spends. For fiscal year 2025, the Congressional Budget Office (CBO) projects a federal budget deficit of $1.9 trillion.

The total amount a country must borrow to fund its annual deficit. Currently, the U.S. national debt stands at a staggering $36 trillion, of which nearly $29 trillion is held by the public, which includes the Federal Reserve. The balance is held by the government itself (“intragovernmental”), like Social Security and federal employee retirement funds.

The debt and deficit levels have grown substantially over the past 25 years.

According to the Treasury, the most significant drivers of the increase “include the Afghanistan and Iraq Wars, the 2008 Great Recession, and the COVID-19 pandemic.”

Additionally, “tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt.”

Now, back to the bill... the CBO released its first comprehensive estimate of the bill and found that it "would add $2.3 trillion to deficits over the next decade. Incorporating our estimates of interactions and the adjustments announced by House leadership, we estimate the bill would add $3.1 trillion to the debt.”

These numbers have put the U.S. credit rating under the microscope. A credit rating measures the ability of a company or a government to repay its debt.

Until 2011, the U.S. maintained the highest rating from all three of the big agencies, Standard & Poor’s, Fitch, and Moody’s. During the 2011 debt ceiling standoff, S&P cut its rating (and has never restored it), and then in 2023, Fitch did the same.

Earlier this month, Moody’s cut America's sovereign credit rating by one notch, noting that “successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.” As of April, it cost $684 billion to maintain the debt, which is 16 percent of the total federal spending in fiscal year 2025.

Although Moody’s downgrade occurred before the bill was passed, their analysis assumed that the TCJA would be extended. Moody’s expects that deficits will widen, “driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.”

The problem is chronic: Political incentives favor spending over fiscal discipline, and the math of compound interest works against the U.S. when it comes to debt reduction.

What will it take for fiscal reform?

Chances are that the bond market will make the clarion call, just like it did with tariffs and threats to the Fed Chair’s tenure. If long-term bond yields rise and lead to a sustained period of elevated borrowing costs, it will be more expensive for the government to borrow new money.

This creates a vicious cycle — higher borrowing costs worsen the fiscal picture that led to the downgrade in the first place. That rinse-repeat cycle can only persist for so long.

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(Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com)

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