US President Donald Trump is closing in on his goal of ramming $4.5tn of tax cuts through Congress, in a massive bill that would slash healthcare spending and drive up government borrowing.
The bill was passed by the Senate on Tuesday after a tiebreaking vote cast by vice-president JD Vance broke the deadlock. It must now be approved by the House of Representatives, where a previous version was passed by just one vote, before Trump can sign it into law.
It has been slammed by hawkish Republicans and Trump’s billionaire backer Elon Musk because of boosts to government borrowing. The White House rejects that criticism, insisting higher growth will tame debt.
It has also been criticised for its regressive impact on households, with the benefits skewed to higher-income Americans.
So what are the key measures in the “Big Beautiful Bill” and what will its macroeconomic impact be?
Big tax cuts
The bill would extend tax cuts introduced during Trump’s first term in 2017 that were slated to expire at the end of this year, and would fulfil his election promises to end taxes on tips and overtime pay.
Altogether, it contains roughly $4.5tn of net tax cuts, which are only partly offset by savings, according to the non-partisan Congressional Budget Office (CBO).
The package is regressive in its impact on household incomes, according to the Yale Budget Lab, as it is partly funded by cuts to healthcare spending and a food assistance programme that supports 40mn low-income Americans.
The Yale analysis estimates that the tax changes plus welfare cuts would drag down after-tax incomes by 2.3 per cent, or $560, for the poorest 20 per cent of Americans.
The top 1 per cent would see an increase of 2.1 per cent, or about $32,265.
CBO estimates the bill will add more than $3.3tn to the national debt up to the 2034 fiscal year.
The Committee for a Responsible Federal Budget think-tank expects the debt-to-GDP ratio to reach 130 per cent in the same period. Interest on government debt, which is projected to near $1tn this year, could exceed $1.9tn in 2034 if the measures in the Senate bill were made permanent.
Economic impact
US Treasury Secretary Scott Bessent has lauded the goal of a 3 per cent of GDP budget deficit, but economists say the bill will drive deficits to an average of 7 per cent a year.
This could be partly countered by rising tariff revenue, but the scale of the income stream is uncertain given Trump’s constant chopping and changing on trade policy. The bill contains a $5tn rise in the government’s debt ceiling.
Massive deficits come at a time of near-full employment and above-target inflation. As a result, the economic boost from the bill will make life more difficult for the Federal Reserve, which is under heavy pressure from Trump to cut interest rates.
Deficits of this scale would have made sense following the financial crisis when demand was deeply depressed, but they are poor fiscal policy at this stage of the cycle, said Neil Shearing, chief economist at Capital Economics. “All of this is a pretty ugly mix I am afraid,” he said.
Some investors have warned that the spectre of rising deficits and debt could damage appetite for US assets. But, while the dollar has been declining, thus far bond markets have not shown fright at the prospect of more borrowing.
The deficits might be sustainable in the short term thanks to the US dollar’s safe haven status, but rising social security entitlement spending will become an increasing burden in the 2030s, warned Innes McFee, managing director of macro at Oxford Economics.
“It is increasingly looking like the tanker is heading in the wrong direction,” he said.
Healthcare spending cuts
The legislation’s impact on healthcare has proved hugely controversial, with some Republicans balking at the unprecedented scale of the spending cuts.
The bill would slash healthcare spending by more than $1.1tn over the next decade and increase the number of people without health insurance by 11.8mn by 2034, according to the CBO’s most recent estimate. The bulk of the savings come from a record cutback to Medicaid, the government insurance programme for low-income Americans.
$1.1tn
Reduction in healthcare spending over 10 years
The bill would cut the number of people eligible for the programme by requiring most beneficiaries to show they were working 80 hours a month. It would also cut federal support for states’ healthcare spending.
The healthcare cuts have driven North Carolina senator Thom Tillis, a Republican, to oppose the bill, saying the measures were at odds with the president’s campaign promises not to interfere with Medicaid. “It is inescapable this bill will betray the promise Donald Trump made,” Tillis said.
Cash injections for military and border security
Despite the spending cuts elsewhere, two areas in particular will receive significant cash injections: defence and border security.
The military gains an estimated $150bn over the decade, according to the CBO. This includes $23bn to build the president’s proposed “Golden Dome” missile defence system and $28bn for shipbuilding, with a focus on unmanned vessels.
Republican senator Roger Wicker, chair of the armed services committee, hailed what he said was “a landmark downpayment towards the modernisation of our military and our defence capabilities” that he said represented “a generational upgrade for our national security”.
Meanwhile $129bn goes to homeland security after Trump’s anti-migrant rhetoric and pledge to crack down on immigration helped propel him to election victory in November. The figure includes $45bn for the president’s border wall, and a similar amount for detention facilities.
A squeeze on green energy
The renewable energy industry is set to be squeezed hard by the legislation, which rolls back many of the generous subsidies introduced under former president Joe Biden’s landmark climate bill, the Inflation Reduction Act.
Wind and solar projects will need to be in service before the end of 2027 to remain eligible for the Biden tax cuts, triggering stark warnings from developers.
Many Republicans have long called for the removal of clean energy subsidies, despite many representing districts that have benefited from renewables projects.
Jason Grumet, president of leading green industry group American Clean Power Association, slammed what he described as “a punitive tax hike targeting the fastest-growing sectors of our energy industry”. It would “land hardest on rural communities who would have been the greatest beneficiaries of clean energy investment”, he warned.
