One Big Bill, Billions in Risk
President Donald Trump’s comprehensive tax and spending package is nearing a vote in the House of Representatives, marking the centrepiece of his second-term agenda. The thousand-page “One, Big Beautiful Bill Act” has exposed rift among House Republicans over proposed cuts to healthcare spending and mounting concerns over national debt, prompting Trump to publicly urge lawmakers not to become "GRANDSTANDERS."
The legislation would extend the 2017 tax cuts set to expire this year, including individual income tax reductions, enhanced child tax credits, and elimination of taxes on tips and overtime pay. It also expands estate tax exemptions, provides business tax breaks, and allocates over $50 billion for border security, including continued wall construction along the Mexico border.
To fund these measures, Republicans propose slashing nearly $800 billion from Medicaid, reducing food stamp programs, and cutting clean energy tax credits. The bill also introduces new taxes on university and private foundation investment income, projected to raise $22 billion.
If passed by the House, the legislation moves to the Republican-controlled Senate, where at least 50 of 53 GOP senators must support it.
According to the FT the bill could add $3.3 trillion to national debt over ten years, raising the debt-to-GDP ratio from 98% to 125%. Trump's team counters that economic growth from tax cuts and deregulation will reduce the fiscal deficit from 6.4% to 3% during his term, with projections of 5.2% growth and 7.4 million jobs created. The bond market was clear on its thoughts with tepid demand on the 20-year bond auction amid concerns of the US’s increasing debt burden, while the 30-year yield breached 5.1%, the highest level since 2023.
For Trump, passage represents a crucial political victory that could boost his 47.3% approval rating, according to RealClearPolitics. However, failure would trigger automatic tax increases next year, creating economic headwinds during midterm elections. The legislation's political risks mirror those of the 2017 tax cuts, which contributed to Republican losses in the 2018 midterms.
Closer to home, UK government borrowing unexpectedly jumped to £20.2 billion in April, up from £19.1 billion a year earlier and well above the £17.9 billion forecast. The increase, driven by higher spending on public services and benefits, intensifies pressure on Chancellor Rachel Reeves ahead of her June 11 spending review. Reeves faces the challenge of balancing the books while improving public services, with only £9.9 billion in fiscal headroom.
Political pressures are mounting, with Deputy PM Angela Rayner advocating tax increases over spending cuts, and PM Keir Starmer partially reversing winter fuel payment cuts. Full-year borrowing reached £148.3 billion, exceeding official forecasts by £11 billion, as the government struggles to stabilise public finances amid economic uncertainty.
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