Donald Trump Advances Tax Bill Through House Amidst Concerns
Donald Trump has advanced significantly towards a key goal of his second term with the House of Representatives narrowly passing his extensive tax bill. Despite celebrations with his Republican allies over the bill’s passage by a single vote on Thursday morning, potential challenges loom for the president and his party.
The legislation, which extends Trump’s 2017 tax cuts and reduces spending on social welfare programs, is criticized for potentially favoring the wealthy and alienating voters by impacting ordinary households adversely. Economically, the bill could have significant repercussions, as longer-term US Treasuries are reportedly being sold off amid investor concerns about America’s fiscal stability, linked to the bill’s deficit-increasing nature. Analysts at Wharton forecast an increase in the US debt-to-GDP ratio from 98% to 125% over the next decade.
Federal Reserve Governor Christopher Waller, appointed during Trump’s first term, expressed that market participants expected the bill to reflect greater fiscal restraint. US Treasury Secretary Scott Bessent stated on social media platform X that the bill would prevent historic tax increases on hardworking Americans and save jobs. His deputy, Michael Faulkender, emphasized the bill as part of Trump’s "pro-growth agenda."
However, the independent Committee for a Responsible Federal Budget warns the bill may cost over $3 trillion over a decade due to only partial compensating spending cuts. Kentucky lawmaker Thomas Massie, one of two Republicans opposing the bill, criticized it as a "debt bomb," pointing to bond investors’ lack of confidence as a warning signal.
Critics argue that Trump officials might incorrectly assume that tax cuts will boost economic activity enough to counterbalance deficits, a stance often claimed by previous Republican administrations. Joseph Thorndike, a historian, explains that the belief in self-financing tax cuts is not supported by economic or historical evidence. Richard Clarida, a former Fed governor, notes that newly introduced tariffs might partially cover revenue gaps, though uncertainty looms over pending trade negotiations.
Democrats unanimously opposed the legislation, highlighting its potential benefits for wealthier households at the cost of middle and low-income families. Katherine Clark, the Democratic whip, condemned the bill for prioritizing the wealthy over basic needs.
The Congressional Budget Office supported these concerns, indicating the bill would generally increase resources for the highest income households while reducing them for the lowest. By 2027, disposable income for the poorest households could drop by 2%, mainly due to cuts in programs like Medicaid and food stamps, while wealthier households could see a 4% increase.
Trump has recently advocated for more populist measures, such as higher taxes on the wealthy and warning against extensive Medicaid cuts. Nevertheless, the final version of the bill included deeper Medicaid cuts, though some of Trump’s campaign promises, like eliminating taxes on tips and government pensions for seniors, were retained.
Trump urged the Senate to expedite the bill’s progress, underscoring its importance by expressing eagerness for its approval.
