Trump gets his bill through for 4 July but economy may pay the price

In the end, Donald Trump got what he wished for. His “big, beautiful bill” successfully made its way through Congress just in time for the celebratory 4 July fireworks.

Given the rush to get it across the line, and last-minute changes made to turn reluctant Republican politicians into yes voters, it is not clear that anyone actually read the full bill before it was approved. A few nasty surprises may be unearthed over the holiday weekend.

“A dark day for our fiscal future”, was the verdict of the non-partisan Committee for a Responsible Federal Budget (CRFB), noting that the package of tax and spending cuts would add at least $4.1tr to America’s national debt by 2034 – and that if various temporary elements of the law were to be extended permanently (which few Washington DC watchers would bet against), that total would rise to $5.5tr.

For historical context, that exceeds Trump’s first-term Covid stimulus package, which added $2.2tr to the national debt, president Joe Biden’s infrastructure and inflation reduction acts, and Obama’s $831bn plan to reboot the economy after the 2008 financial crash.

The CRFB forecasts that as a proportion of GDP, the new law will cause the national debt to soar from 100% now to 127% by 2034. “In a massive fiscal capitulation, Congress has passed the single most expensive, dishonest and reckless budget reconciliation bill ever,” said CRFB president Maya MacGuineas, adding that “it comes amidst an already alarming fiscal situation”.

Despite much chuntering, few Republicans in Congress had the spine to block a bill that Trump insists he owed the Maga base – though overall it is likely to hurt many of the poorer white voters who backed him in last year’s election.

Most of its cost reflects making permanent temporary tax cuts for the rich that were about to expire, and adding additional tax cuts that similarly mostly benefit the wealthiest Americans. There will be some modest offsetting spending cuts, mostly hurting poorer Americans –including stripping $1.1tr from healthcare spending and cutting federal food assistance by $285bn.

Trump argues the cuts will boost growth by freeing up cash to invest in the economy. Critics expect it to have the opposite effect, with the increased debt load acting as a drag on GDP growth through higher borrowing costs.

The US dollar has already had its worst start to the year since 1973. It could fall further with a rise in government debt, adding to doubts about whether it can continue to be relied upon as the world’s reserve currency and adding to the hopes of rivals that they could replace it.

As well as the heightened macroeconomic risk, business in some sectors will face significant consequences. The legislation seems designed to cripple the country’s hitherto booming renewable energy sector, while boosting the carbon-burning industries. Electric vehicles also lost subsidies and other benefits, as Trump turned on his former ally, Tesla boss Elon Musk, who became the bill’s loudest critic.

Ahead of the final vote, over half of American voters opposed the bill, compared with 30% who supported it. Previous Republican presidents have lost their majorities in Congress over much more modest spending shake-ups. But this is Trump, so maybe this time will be different.

Photograph: Getty Images