By PETER NAVARRO | The Hill | May 28, 2025
After touching 4 percent on Apr. 2, the yield on the 10-year Treasury has climbed more than 50 basis points. Pundits and portfolio managers alike insist the bond market vigilantes are delivering a decisive and unmistakable rebuke of President Trump’s One Big Beautiful Bill Act and its tax cuts — just passed in the House and now pending in the Senate.
On the surface, they appear to have a case. The Congressional Budget Office projects that the Big Beautiful Bill Act will add almost $4 trillion to the national debt over the next ten years.
To the CBO, tax cuts mean less revenue. Less revenue in the absence of equal spending cuts means more borrowing. More borrowing means higher bond yields, a bigger interest payment burden on future generations, and a fiscal drag on GDP growth.
Go a bit deeper, however, and it is clear that financial markets do not have complete information about either the historical inaccuracy of CBO forecasts or the substantial positive revenue impact of the new Trump tariffs.
For years, a feckless CBO, saddled by archaic Keynesian and static assumptions, has routinely underestimated the dynamic revenue effects of pro-growth tax policies, deregulatory momentum, lower energy prices, and trade deficit-reducing fair-trade policies. Exhibit A is the Trump 2017 Tax Cuts and Jobs Act.
When Congress enacted this historic legislation, the CBO projected only modest improvements in GDP growth, estimating a return to trend growth around 1.8 percent to 2.0 percent. Yet actual growth in 2018 jumped to 2.9 percent, exceeding CBO forecasts by nearly a full percentage point.
What the CBO forecast missed was a surge in business investment, the repatriation of overseas earnings, and a sharp increase in consumer and small business confidence that followed both the tax cuts and sweeping regulatory reforms. This miscalculation led to persistent underestimates of tax revenue, employment gains, and productivity improvements during the early Trump years. This demonstrates a systemic blind spot in CBO modeling whenever policies deviate from the Keynesian static status quo norm.
The CBO’s latest score of Trump’s One Big Beautiful Bill Act is even worse. It pessimistically assumes a long-term, low-ball GDP growth rate of a mere 1.7 percent. This falls well short of what America’s economy is capable of under Trump policies that promote a lower tax and regulatory burden, strategic energy dominance, and trade deficit-reducing trade policies.