After much debate, US House Republicans have reached an agreement over Donald Trump’s multitrillion-dollar legislative plan to cut taxes. On Tuesday, the US president urged his party to approve his “big, beautiful bill” in a rare visit to the US Capitol. It now awaits approval from the House of Representatives. If passed, it will go on to the Senate. Lawmakers ought to think twice. Trump gets the bill’s branding only partly right. It is, indeed, enormous. It could raise US debt by more than $3.3tn over the next decade. Yet, in its current form, the economic consequences risk being far uglier than the president portrays.
Concerns over America’s growing debt pile predate Trump’s second term. But, his administration’s erratic approach to policymaking has raised further alarm. Last week, Moody’s downgraded the US from its top-notch triple-A sovereign credit rating, becoming the last of the big three credit rating agencies to do so. That pushed US long-term borrowing costs even higher. Over recent months, the White House’s stop-start tariff agenda has also raised questions over the safe haven status of American assets, which has put upward pressure on Treasury yields.
Trump’s fiscal plans add insult to injury. The bill would push the US debt-to-GDP ratio up around 25 percentage points to a record 125 per cent by the end of 2034, according to projections from the Committee for a Responsible Federal Budget. The annual deficit as a share of the economy is expected to rise to 6.9 per cent, from around 6.4 per cent. This raises the risk of a sharper and disorderly rise in US borrowing costs, as fears over US debt sustainability grow.