The "One Gorgeous Greenbacks" Plan: Trump's Tax Bill Predicted to Saddle US with Trillions in New Debt
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Analysis indicates Trump's tax legislation may result in a significant addition to U.S. national debt in the billions. - Potential Increase in US Debt due to Trump's Tax Legislation
The tax and spending bill backed by US President Donald Trump is expected to hike the US budget deficit by a whopping $2.8 trillion over a decade, according to a new analysis by the nonpartisan Congressional Budget Office (CBO). This assessment includes positive economic effects, as announced by the CBO on Tuesday (local time). Two weeks ago, sans these economic effects, the CBO had projected an increase in public debt from the existing $36.2 trillion by $2.4 trillion, or $3 trillion inclusive of interest costs.
Stumbling Blocks for Trump's "One Terrific Treasury" Plan
This latest estimate contradicts the assertions of Trump's Republicans, who claim the all-encompassing package will stimulate the US economy enough to decrease public debt via increased revenues. "This will lead to a stronger and wealthier America," stated Republican Senate Majority Leader John Thune on Tuesday.
The House of Representatives voted in favor of the bill, titled the "One Fine Finance Act," in May. Republicans in the Senate are now discussing a revised version. The bill can become law only when both chambers of Congress reach a consensus on a uniform version, which can then be handed to Trump.
The draft bill seeks to prolong the substantial tax cuts introduced during Trump's first term from 2017 to 2021, which would otherwise expire at year's end. To address this, there are planned drastic cuts to the Medicaid healthcare program, which primarily caters to low-income and elderly individuals.
Key Provisions
- Extended Tax Breaks: The bill prolongs and refines the growth-oriented tax policy initiated with the 2017 Tax Cuts and Jobs Act (TCJA). It eliminates taxes on tips and overtime pay, providing working Americans potential annual savings of about $1,675 to $1,750 just from these provisions. It also incorporates temporary full expensing for new manufacturing facilities and reduces tax rates for domestic manufacturing to promote American industrial output. The bill makes permanent many of the TCJA’s provisions that benefit working families and small businesses, which experts say are critical for sustaining wage gains and economic expansion for lower and middle-income earners [2][3][4].
- Children’s Savings Accounts and Social Safety Net Adjustments: The bill establishes new children’s savings accounts but also includes substantial cuts to benefits, particularly health coverage and nourishment assistance, disproportionately impacting the most vulnerable Americans. These cuts trim federal spending but raise fears about rising hardship among poor and needy populations [1].
- Heightened Spending on Borders and Defense: The OGBB increases funding for border control and military spending, prioritizing national security and border control.
- Tax Code Amendments Targeting Wealth and Nonprofits: The bill imposes taxes on large endowments and withdraws certain tax advantages. It ends roughly $500 billion in tax breaks enacted under the Biden administration, predominantly perceived as windfalls for affluent individuals, corporations, and foreign interests, including China. Special interest tax breaks for affluent sports team owners are also eliminated [3].
- Anti-Immigration Measures: It limits eligibility for tax credits and deductions to individuals with valid Social Security numbers, tightening benefits and healthcare subsidies for undocumented immigrants. Additionally, it imposes new fees on remittance payments sent abroad by undocumented immigrants [3].
- Rural Investment and Economic Development: The bill renews and strengthens the Opportunity Zone program, with the goal of attracting over $100 billion in investment over the next decade, mainly targeting rural distressed communities. It estimates $284 billion in new economic growth from revitalized American manufacturing [3].
Projected Economic Impact and Budgetary Implications
- Wage and Employment Growth: The Trump administration claims the bill will deliver up to an $11,600 wage boost for workers in targeted industries and spur new job creation by encouraging domestic manufacturing and offering targeted relief for inflationary pressures [2].
- Income Distribution: While promoted as advantageous for American workers, the bill is criticized for disproportionately favoring the wealthiest Americans. The poorest segments are expected to experience hardship due to benefit reductions, exacerbating inequality and poverty risks [1].
- Fiscal Cost and Debt Impact: The bill’s expansive tax cuts and increased spending entail a considerable fiscal cost. Critics, including Elon Musk, denounce the OGBB as fiscally reckless, warning that it will result in "crippling" national debt and jeopardize the country's economic future. The bill's current form foresees substantial increases in the federal deficit due to lost tax revenues and higher outlays, potentially undermining investor confidence and harming US economic competitiveness in the long term [1].
- Economic Competitiveness and Investment: The OGBB's reduction of clean energy initiatives and its approach to foreign investment are seen as threats to US economic resilience and long-term competitiveness. However, proponents argue the bill will foster manufacturing rejuvenation and small business growth, leading to sustained economic expansion [1][3][4].
The tax law backed by US President Donald Trump, known as the "One Fine Finance Act," contains provisions such as extended tax breaks, children’s savings accounts, and investments in rural areas, but is projected to increase the US budget deficit by $2.8 trillion over a decade. This estimate contradicts the assertions of Trump's Republicans, who claim the bill will stimulate the US economy and decrease public debt via increased revenues. On the contrary, critics warned that the bill, if passed, could result in "crippling" national debt and jeopardize the country's economic future. Thus, the tax law and its impact on finance, business, politics, and general-news remain a subject of intense debate in the USA.
