What Donald Trump’s ‘One Big Beautiful Bill’ aims to do, and what is not so beautiful about it

However, the passage of the Bill has raised concerns that have significant ramifications both for the health of the US economy and the electoral prospects of the Republican Party, which currently dominates both the federal executive and the legislature.

Why is the Bill ‘big and beautiful’?

President Donald Trump won his second term based on certain key promises. Some of these — such as imposing tariffs on imports from different countries — could be initiated through executive actions. But many others required legislative changes, which is the exclusive preserve of the US Congress (comprising the House of Representatives and the Senate).

The OBBB Act essentially encapsulates Trump’s policy agenda and campaign promises in ‘one big, beautiful’ legislative document.

There are five key aspects of the OBBB.

• * The first element is that it extends and makes permanent the cuts to income tax and estate tax that Trump brought in 2017 during his first term.
• * The second refers to the new tax cuts on things such as overtime, tips, and social security incomes. Overall, the White House claims, “Americans making between $30,000 and $80,000 per year will see their taxes cut by 15% next year”.
• * The third big element is spending more on border security (to prevent illegal immigration) and towards the improvement of US military and defence capabilities.
• * The fourth element is to cut down on “waste, fraud and abuse” in government spending.
• * The fifth element is to raise the so-called “debt ceiling”. The debt ceiling is essentially the limit on how much the US government can borrow. Since the amount to be borrowed has been going up over the years, the US Congress has to, from time to time, formally raise the debt ceiling. Without the debt ceiling being raised, the US government will not be able to pay its bills.

What is not so beautiful about the Bill?

Overall, there are two broad sets of concerns that have been highlighted by economists and members of US Congress, including several Republicans like Josh Hawley (Senator from Missouri).

The first is about the adverse fiscal (having to do with the government budget) impact of OBBB and its macroeconomic implications.

While the OBBB is essentially a policy document, each element has its own specific implication for the US Federal budget. As such, tax cuts on the one hand and spending increases on the other have the effect of worsening US government finances.

As CHART 1 alongside shows, the US Federal deficit — the gap between what the government spends and what it earns — is already quite high. As of 2024, such borrowings stood at around 6.4% of US GDP, more than double the level that many believe is acceptable.

For perspective, that level of federal deficit translates to $1.9 trillion, which is roughly 50% of India’s total GDP in 2024. The OBBB is expected to increase federal deficits further and add to the already growing pile of US debt.

Each year’s deficit adds to the overall debt. As CHART 2 shows, debt to GDP ratio has been rising fast and has already touched the 120% level. At the going rate, many expect it to rise to 200% in the coming decade.

Policy experts, including the US Federal Reserve Chair Jay Powell, say that the trends of US deficit and debt (as proportions of GDP) are unsustainable.

It is for this reason that global investors are increasingly wary of lending fresh money to the US government. This shows in the US government’s falling credit ratings as well as rising bond yields.

For instance, on May 17, even before this Bill was passed, Moody’s stripped US government debt of its triple A rating. It is for the first time in US history that none of the top three credit rating agencies — Fitch and S&P are the other two — rate US government debt as top notch. Moody’s estimates that at the going rate, federal deficits could grow to 9% of US GDP by 2035.

As investors pull away from buying US dollar denominated bonds, their prices fall and their yields rise; a trend that is being witnessed at present. Higher yields imply the US government will have to pay a higher interest rate for its borrowings.

To be sure, when the market charges higher interest rates for lending money to the US government — which is the most risk-free debt one can extend — the interest rates for everyone (US citizens and US businesses alike) go up in a commensurate manner.

The second concern is about the redistributive aspects of the OBBB. Economist Justin Wolfers of University of Michigan has called the Bill “anti-Robin Hood” for how it transfers the wealth from the American poor to the American rich. It does so by giving tax cuts to the rich while limiting government help to the poor.

An analysis of the OBBB by the Congressional Budget Office (CBO), which provides “objective, nonpartisan information” and helps the Congress make effective budget and economic policy, finds that even though overall this Bill will provide US families with more resources over the next decade, the benefits will not be evenly distributed.

“CBO estimates that household resources would decrease by an amount equal to about 2 percent of income in the lowest decile (tenth) of the income distribution in 2027 and 4 percent in 2033, mainly as a result of losses of in-kind transfers, such as Medicaid (health insurance) and SNAP (Supplemental Nutrition Assistance Program). By contrast, resources would increase by an amount equal to 4 percent for households in the highest decile in 2027 and 2 percent in 2033, mainly because of reductions in the taxes they owe,” it states.