Opinion The ‘beauty’ of Trump’s One Big Beautiful Bill may lie only in the eye of the beholder

With Trump’s assurance that America was going to drill away, the removal of tax benefits to the clean energy sector is hardly a surprise. The OBBB is set to close the existing commercial and consumer tax credits under the Inflation Reduction Act (IRA). The obsolescence of the measure could be ill thought-out as the American shale industry is at the mercy of OPEC.

To “make America great again”, Trump advocated recklessly for inward-looking policies such as tariff hikes, taxes on remittances and immigration control, all of which are attempts to negotiate trade deals bilaterally. This includes the retreat from the global tax deal while getting countries like India and Canada to stall their efforts to apply a digital services tax. The proposals to apply additional income taxes on payments made to persons of a jurisdiction applying “unfair foreign taxes” — such as a digital services tax or top-up taxes on payments taxed less than the global minimum rate — are clever negotiation tactics that seem to pay off making it a propitious time for large US corporations.

Caught in the fire is the Federal Reserve, which has adopted a wait-and-watch approach. The tariff, if carried through, can set off inflationary effects that may transmit slowly and may be exacerbated where international oil prices spike again if tempers soar in West Asia. As the world watches the US manoeuvre through international political and domestic economic headwinds, there is no doubt that US debt is expected to rise, more so if defence budgets are to grow. But is the world willing to hold this debt? The US-Iran conflict has further convoluted diplomatic ties in the region and has economists guessing about what this may mean for the future. If political stress flares, central banks will have to resume an attentive position. If that be the case, the US will also have to rethink its borrowing plans and tax cuts. The yield of the 10-year US treasury is among the highest in its S&P rating class, and with the recent Moody’s rating cut, the question is if it can borrow additionally at prevailing costs. A pause on interest rate reductions would raise the costs of borrowing. In spite of the elevated interest rates that pose a domestic fiscal problem, a third of US treasuries are held abroad and are largely with Japan, China and the UK. The willingness of these countries to buy the T-bills will also determine the US’s prospects of delivering tax cuts. Given that the US is no longer playing a reliable arbiter, with policy driven by temperament, the currency of its government securities may not be unaffected. The promised return of economic glory may be delayed for the US and for now the beauty of the bill may only lie in the eye of the beholder.

The writer is associate professor, NIPFP