Budget panel warns rising interest costs are crowding out spending as lawmakers debate $7 trillion in tax cuts and deep Medicaid cuts

WASHINGTON — Witnesses at a House Budget Committee hearing on May 7 told lawmakers the federal government’s fiscal trajectory is unsustainable as interest costs climb and deficits remain large, and lawmakers sparred over whether the solution should be deeper spending cuts or more pro-growth tax policies.

“Interest payments on our national debt now surpass the entire defense budget,” said Dr. Joshua Rao, senior fellow at Stanford University’s Hoover Institution, in opening testimony. Rao warned that rising interest costs could consume a growing share of federal revenue and leave little left for defense or domestic programs.

The hearing brought economic forecasters, think‑tank researchers and market analysts before the committee. Dr. Paul Winfrey, CEO of the Economic Policy Innovation Center, described the nation’s fiscal position as “so fragile that unless Congress acts decisively, we will collide with a self‑inflicted debt spiral.” Don Schneider, deputy head of U.S. policy at Piper Sandler, and Michael Linden, senior policy fellow at the Washington Center for Equitable Growth, echoed warnings that continued borrowing at current rates would crowd out private investment and push up borrowing costs for households and businesses.

Committee members repeatedly returned to a single tradeoff: whether to protect revenue and social programs such as Medicaid and SNAP, or to advance large tax cuts now under consideration in the House reconciliation framework. Multiple witnesses and members said the two moves — large tax cuts and large cuts to social programs — would not be fiscally neutral.

“My research shows that when governments impose high tax burdens, you get lower than expected revenue growth,” Rao testified, arguing that “higher tax rates are not the answer” if they reduce growth. Linden disagreed on the root cause, saying repeated unpaid‑for tax reductions over the last 25 years are the main reason the debt is rising and arguing that cutting programs that serve low‑ and moderate‑income families to pay for further tax cuts would be “economically and fiscally reckless.”

Members cited contemporaneous scorekeeping and analysis in their arguments. Ranking Member Brendan Boyle submitted a new Congressional Budget Office letter for the record during the hearing that the committee discussed: Boyle noted the CBO concluded per‑capita caps for Medicaid expansion could increase the uninsured by roughly 1.5 million by 2034 and that eliminating provider taxes could lead to about 3.9 million more people losing coverage.

Republican members emphasized long‑term growth and root‑cause spending restraint. Chairman Jodey Arrington urged the committee to “bend the curve” on mandatory spending and cited the House reconciliation effort as an opportunity to set the nation on a different path. Several Republican members argued the committee should pursue program integrity, tighter eligibility checks and limits on federal financing flows they said had expanded beyond the original scope of programs such as Medicaid.

Democrats and Democratic witnesses warned that the reconciliation framework’s proposed tax cuts — which several members and witnesses cited as totaling multiple trillions over time — would be largely debt‑financed and would force deep reductions in health and nutrition programs if the $880 billion to $1.5 trillion in savings targets in some committee instructions were met without touching Medicare. Linden, among others, said that the largest drivers of projected long‑run deficits were unpaid tax cuts enacted over the past quarter century.

Members and witnesses also debated “current policy baseline” accounting conventions. Boyle called the tactic “a total fraud” in colloquial terms and warned it would be used by both parties to disguise the true cost of extending or creating tax provisions.

Committee discussion ranged from detailed budget mechanics — CBO baselines, Byrd Rule‑eligible savings, provider taxes and the fiscal effects of tariff policies — to broader framing about who should shoulder reductions. Witnesses repeatedly warned markets react faster than policymakers and that even modest increases in interest rates could sharply raise federal interest costs: Rao and others estimated interest payments already consume a significant fraction of revenue and could rise materially if yields remain above CBO assumptions.

The hearing included no formal votes. Members on both sides said they would submit additional questions for the record.

Why it matters: Committee members will reconcile divergent approaches as the House moves toward reconciliation instructions and drafting of the House reconciliation bill. The choices lawmakers make about offsets and policy design will determine whether the near‑term package raises, holds or reduces long‑term deficits and how that fiscal path affects programs, markets and household borrowing costs.

The hearing record includes testimony and contemporaneous CBO estimates that members said they would use in later negotiations.

(Reporting note: quotes and attributed statements are taken from witness testimony and member remarks recorded in the hearing transcript.)