President Trump’s latest fiscal foray, dubbed the “One, Big, Beautiful Bill,” is making its way through Congress, promising the most significant tax overhaul since his 2017 legislation. While proponents tout job creation and economic uplift, a closer look at the numbers reveals a potentially perilous path for America’s already strained fiscal health.
The cost of beauty: Beneath the superlatives lies a stark fiscal reality. The sweeping package is projected to add between USD 2–5 trillion to America’s towering USD 36.2 trillion debt pile over the next decade, with lower tax revenue more than outweighing tighter spending. The plan largely extends the 2017 Trump tax cuts but sweetens the pot by proposing to eliminate taxes on tips and overtime, and significantly raising the cap on state and local tax (SALT) deductions for many households. Meanwhile, spending on defense and border security is set to rise, while spending on health and food programs will fall sharply.
Fiscal fiction: The Trump administration insists the tax cuts will largely pay for themselves through a supercharged economy. However, this is unlikely to come to pass. The 2017 Tax Cuts and Jobs Act—Trump’s previous major piece of fiscal legislation—also began with similar promises of self-funding but is estimated to have racked up at least USD 1 trillion in federal debt. While tax cuts can stimulate economic activity, they rarely generate enough new growth to fully cover their costs, particularly when the economy is already near full employment.
Market tremors: Bond investors have grown increasingly uneasy about America’s escalating debt trajectory in recent months, adding to concerns about economic policymaking under Trump more generally. So have credit rating agencies, with Moody’s downgrading its rating for the U.S. in May. The passage of Trump’s fiscal bill would only inflate such concerns and put upward pressure on bond yields, as would wrangling over the debt ceiling, which the government is projected to hit by August. That said, demand for U.S. Treasuries has yet to dry up significantly: No other market is as deep or liquid, and default is still a remote possibility.
A possible fiscal reckoning to come: Our Consensus Forecast is for the U.S.’ fiscal deficit to average above 6% over the next five years, the largest among any developed economy and by far the largest in the G7. These forecasts could be revised up going forward if the “big, beautiful” bill is passed. At the same time, U.S. public debt as a share of GDP is set to rise from 124% in 2024 to 127% by 2029. The public debt ratio is less remarkable by international standards: Within the G7, both Italy and Japan have higher ratios, with Japan’s almost double that of the U.S.
That said, the U.S. is currently relying on its strong economic trajectory to keep the debt ratio in check. If Trump’s tariffs, assault on universities and threats to the rule of law reduce GDP growth potential, public debt as a share of GDP could start to rise faster, testing investors’ faith. Moreover, a significant share of U.S. debt is held by foreign investors—unlike Japan’s debt, about half of which is held by the Bank of Japan—making the country somewhat vulnerable to changes in global financial markets. Plus, the debt ceiling—a hard limit on the government’s ability to borrow—is an ever-present risk to the U.S.’ ability to service its debt.
In sum, the president’s “beautiful” bill might offer a short-term economic stimulus, but could conceivably be followed by an unappealing fiscal hangover.
Insight from our analysts:
EIU analysts said:
“There remains a high degree of uncertainty around the final composition of the tax-and-spending bill, as Republicans will need to forge difficult compromises in order to pass the legislation at all. However, the version advancing through the House supports our view that the federal deficit and debt are most likely to rise under the Trump administration, despite Republican pledges to control both. Regardless of the bill’s future, we continue to expect that Congress will increase the debt ceiling in time to avoid a default in August. However, risks to this benign forecast will rise if Republicans show little sign of overcoming their disagreements in the coming weeks.”
Our latest analysis:
- New Zealand’s central bank cut rates in May amid mild inflation.
- Italy’s economy accelerated in Q1.