GOP Tax Cuts: How Rising U.S. Debt Could Hike Consumer Borrowing Costs

A sweeping package of tax cuts passed by House Republicans in May is projected to add trillions to the U.S. debt,potentially raising interest rates for consumers. As the Senate begins its review, economists warn that increased borrowing costs could impact everything from mortgages to auto loans, making affordability a growing concern. The Committee for a Responsible Federal Budget estimates the bill could add $3.1 trillion to the national debt over a decade, while the Penn Wharton Budget Model projects an even higher figure of $3.8 trillion.

The Looming Debt Crisis: A Breakdown

The Congressional Budget Office (CBO) projects that, under current law, the federal debt will reach unprecedented levels relative to the size of the economy. By 2034,the debt held by the public is projected to reach 116 percent of GDP,far exceeding the historical average according to recent CBO data.

Representative Thomas Massie of Kentucky, one of only two Republicans to vote against the House measure, described it as a “debt bomb ticking,” highlighting the near-term increase in deficits.

Did You No? The U.S. national debt currently exceeds $34 trillion, or roughly $100,000 per citizen.

How Rising Debt impacts Treasury Yields

Consumer borrowing costs, such as those for mortgages and auto loans, are often linked to U.S. Treasury bond yields, particularly the 10-year Treasury. These yields are primarily determined by market forces, fluctuating based on investor supply and demand.

The U.S. government relies on Treasury bonds to finance its operations due to an ongoing budget deficit. To attract investors, the government pays interest on these bonds.

If the Republican bill,known as the “One Big Lovely Bill Act,” substantially increases the U.S. debt and deficit, investor confidence could decline, reducing demand for Treasury bonds, economists caution.

Investors may then demand higher interest rates to offset the perceived risk of the U.S. government defaulting on its debt obligations.

Pro Tip: Keep an eye on the 10-year Treasury yield as a key indicator of potential shifts in consumer borrowing rates.

Philip Chao, chief investment officer and certified financial planner at Experiential Wealth, notes that higher risk necessitates higher interest rates on the 10-year treasury.

Moody’s downgraded the U.S.’ sovereign credit rating in May 2025, citing the growing federal budget deficit, which led to a spike in bond yields.

Debt’s Ripple Effect on Consumer Borrowing

Mark Zandi, chief economist at Moody’s Analytics, suggests that for every 1-point increase in the debt-to-GDP ratio, the 10-year Treasury yield rises by approximately 0.02 percentage points.

as a notable example, if the debt-to-GDP ratio were to climb from 100% to 130%, the 10-year Treasury yield could increase by about 0.6 percentage points, pushing the yield above 5% from its current level of around 4.5%, Zandi explains.

A fixed 30-year mortgage could then rise from nearly 7% to roughly 7.6%, potentially making homeownership less accessible, especially for first-time buyers.

Kent Smetters, an economist and faculty director for the Penn Wharton Budget Model, estimates that the debt-to-GDP ratio would surge from about 101% at the end of 2025 to an estimated 148% by 2034 under the House legislation.

Impact on Bond Investors

Rising Treasury yields can also negatively impact current bondholders, as their existing Treasury bonds become less valuable, affecting investment portfolios.

Chao points out that when market interest rates increase, bond values decrease, reducing net worth.

The long-term Treasury bond market has experienced increased volatility due to investor concerns, prompting some experts to recommend shorter-term bonds.

Conversely, new bond buyers may benefit from the higher rates, Chao adds.

‘Pouring Gasoline on the Fire’

John Quinlan, Senior Economist at Wells Fargo, notes that consumer financing costs have roughly doubled in recent years.

The average 10-year Treasury yield was approximately 2.1% from 2012 to 2022, compared to about 4.1% from 2023 to the present, Quinlan states.

While the U.S. debt burden is just one factor influencing Treasury investors and yields, Quinlan suggests that financial markets have become increasingly concerned about debt levels in recent years.

Even without the Republican legislation,the U.S. debt burden is projected to increase, with the debt-to-GDP ratio rising to 138%, according to Smetters.

Chao argues that the House legislation would exacerbate the existing problems,”pouring gasoline on the fire.”

He concludes, “It’s adding to the problems we already have, and this is why the bond market is not happy with it.”

What are yoru thoughts on the potential impact of rising debt on consumer borrowing? How should policymakers address the growing national debt?

Disclaimer: This article provides general facts and should not be considered financial advice. Consult with a qualified financial advisor before making any investment decisions.

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