Ten charts to explain Trump’s big, beautiful bill

ON JULY 3RD Congress gave Donald Trump the Independence Day present he wanted: with a vote of 218–214, House Republicans passed the “One Big, Beautiful Bill Act” (BBB)—the most consequential legislation of Mr Trump’s second term.

To meet Mr Trump’s July 4th deadline, the House of Representatives passed without amendment the Senate’s version of the bill, which had squeaked through on July 1st. Several forecasts predict that the combination of unfunded tax cuts and spending measures will widen America’s budget deficit, sap long-term growth and harm the poorest citizens. The charts below show by how much.

The Trump administration insists that the BBB will reduce borrowing. But that is true only if you assume that tax cuts during Mr Trump’s first term, which were due to expire at the end of this year, are already permanent (even though they were costed as temporary measures until now).

Apart from making one set of supposedly temporary tax cuts permanent, the BBB introduces another bunch of tax cuts that will supposedly lapse when Mr Trump leaves office (and, again, probably won’t). Estimates from the Committee for a Responsible Federal Budget, a think-tank, suggest the bill will add $4.1trn to the public debt over the next decade if the temporary provisions actually turn out to be temporary. If all its provisions become permanent, the cost rises to $5.5trn (see chart 1).

Our second chart shows where the costs come from. The biggest is making permanent the 2017 tax cuts—including sharply lower rates for individuals (see chart 2). Other breaks include tax breaks for tips and overtime, and raising federal-tax relief for payment of state and local taxes. The bill will also set up “Trump accounts” for newborns, with one-off payments to new parents for three years.

It would give big boosts to spending by the Department of Defence and to Immigration and Customs Enforcement, which the administration wants so that it can increase the number of people deported from America. All these outlays are only partly offset by other measures.

The tax cuts are expected to give the economy a modest short-term lift (though economists have yet to finish running the numbers on the final version of the bill). That may help explain the stockmarket’s current exuberance. Over time, however, the outlook is different.

The original House bill, which has now been superseded, was expected to shrink GDP by 2% by 2050, according to the Budget Lab at Yale, a research centre (see chart 3). Higher debts will push up interest rates, in effect crowding out private investment. The costlier final version could do even more damage. Some forecasters are more upbeat, however. They say that lower taxes will draw more people into work and spur investment, partly offsetting the hit to growth.

America’s debt surged after the financial crisis of 2007–09 and the covid-19 pandemic. The ratio of debt to GDP is already close to the level reached after the second world war. By extending tax cuts that were set to lapse, without offsetting savings, the BBB will drive it higher still.

Yale’s Budget Lab estimates that the final version of the bill will lift debt to 186% of GDP by 2055, if the new tax cuts are made permanent. That is well above the 117% expected if the 2017 tax measures were allowed to expire (see chart 4).

A consequence of higher debt is the effect on the government’s interest payments. Interest rates rose sharply in response to post-pandemic inflation and have stayed elevated ever since. Higher rates plus a higher stock of debt mean much higher debt-repayment costs. Last year these were 3% of GDP, but they are forecast to surge over the coming decades and the BBB could push them still higher.

The more that interest payments rise, the more tempting it is for politicians to default or inflate away debts, rather than raise taxes or cut spending, which is politically difficult. If bond investors begin to fear such an outcome, they can force a reckoning by dumping Treasuries, which further raises interest costs. It is impossible to say when a crisis will strike, but the bill makes one more likely.

Despite Mr Trump’s talk of helping the least well-off, the bill’s biggest beneficiaries would be the rich. Analysis by scholars at the University of Pennsylvania suggests that Americans earning under $18,000 would lose $165 in 2027, or 1.1% of their income. By 2033 their annual losses would rise to $1,300 on average—about 7.4% for the group.

The richest 0.1%, earning over $4.45m, would gain more than $300,000 in 2027, a 2.3% increase. Much of this comes indirectly, via changes to corporate taxes, which are usually assumed to benefit wealthier households who own stocks. These gains are expected to shrink over time, however, as other reforms kick in.

Income losses at the bottom reflect cuts to welfare programmes that support the poorest Americans. One target is food stamps—formally, the Supplemental Nutrition Assistance Programme (SNAP). The bill will shift some costs to states and impose stricter work requirements on recipients.

The result could be nearly $300bn in cuts and 1.3m fewer people receiving benefits. Analysis by the Commonwealth Fund, a think-tank, on the original House version suggests the pain will be felt most in states where Mr Trump won strong support, such as Mississippi. (Republicans have delayed the new work rules until after next year’s midterm elections.)

The biggest change to social policy, though, relates to Medicaid, America’s health insurance for the poor. KFF, a think-tank, estimates that the bill will reduce federal Medicaid spending by $1trn over ten years (see chart 8).

These cuts, and other changes in the bill, mean the number of Americans without health insurance will rise. The Congressional Budget Office estimated that the bill will increase the number of uninsured Americans by nearly 12m by 2034. Many of those who lose insurance will do so because of new work requirements. When tried at the state level, these requirements have entangled qualified applicants in red tape, but failed to boost employment.

Republicans are also using the BBB to gut the Inflation Reduction Act (IRA), Joe Biden’s signature climate law. The bill includes measures that critics say will choke off clean-energy investment. Analysis by the Rhodium Group, a research firm, suggests that under the IRA America was on course to cut greenhouse-gas emissions by 40% from 2005 levels by 2035. A de facto repeal would reduce that by more than ten percentage points (see chart 9).

One less-discussed but consequential provision buried in the bill is a tax on remittances. Early drafts proposed a rate as high as 3.5%, but the final version pulled the tax rate down to 1% and narrowed the types of transactions that it applies to. Modelling by the Centre for Global Development, a think-tank, found that the impact on El Salvador will be equivalent to just 0.6% of gross national income, down from more than 1% under an earlier version of the bill. Still, after the deep cuts to foreign aid earlier this year, the BBB will be another squeeze on some of the world’s poorer countries.

The overall picture points to a grim new reality. The BBB is a show of loyalty by Republicans to Mr Trump and a threat to America’s long-term economic health.■