Still beautiful? Trump’s tax cuts and spending plans look ominous

The Act is a harsh blow to the research infrastructure underpinning America's technological leadership, slashing funding for scientific aid and grants by up to 55%. These cuts, combined with the introduction of a new progressive tax of about 8% on elite universities that earn the most endowment income per student (such as Harvard and Columbia), are likely to have severe consequences.

The US is the top destination for foreign-born researchers. Many arrive as students and stay to teach or launch businesses. Their contribution to American productivity has been enormous: one recent study found that immigrants are responsible for about 36% of US innovation. Yet Trump's team depicts immigrants as "invaders," scrutinises their social media activity, and imposes stricter visa conditions.

Migrants and security

OBBBA allocates vast sums to combating illegal immigration and deporting undocumented migrants, with $46bn to build the US-Mexico border wall, $45bn to build immigration detention centres housing up to 100,000 people, and billions more to hire 10,000 additional staff at Immigration and Customs Enforcement (ICE) by 2029. It also imposes new taxes on immigrants, including a 1% levy on remittances sent to relatives abroad, restrictions on health insurance premium deductions, and a ban on asylum seekers and holders of temporary protected status from receiving tax breaks.

Immigrants comprise about one-third of the entertainment and hospitality workforce, and around 75% of agricultural workers, meaning that those industries could be badly hit. The hardline immigration approach is expected to hinder labour force growth (and by extension, economic expansion) raising business costs and lowering profitability. With growth stifled, the already-high debt-to-GDP ratio is projected to rise further.

Beyond this, the Bill earmarks $150bn for national security, primarily to bolster naval capacity and to fund the 'Golden Dome'—Trump's missile defence initiative.

Public debt

The Congressional Budget Office, a nonpartisan agency, estimates that OBBBA will add $3.4tn to the federal deficit over the next decade, contradicting White House claims that the deficit will shrink by more than $1.4tn through growth-driven revenues. By 2030, the debt-to-GDP ratio is expected to surpass its post-World War II peak, despite a far less favourable demographic outlook.

Yet unlike the post-war era, today's US economy is not poised for the kind of rapid growth that could ease the debt burden. Accordingly, the credit rating agency Moody's downgraded the US sovereign rating from AAA to AA1 after the public debt hit 122% of GDP, a clear warning that failed to sway Trump and his allies, who insist the Act will "pay for itself" through growth. This was the same gamble made in 2017 (and lost), ignoring the lessons from the 1980s, when President Ronald Reagan's tax cuts led to surging deficits despite a supportive growth environment.

OBBBA also raises the debt ceiling by $5tn, a limit unlikely to hold. Since 1960, Congress has raised, suspended, or redefined the debt ceiling 78 times. During his first term alone, Trump oversaw an $8tn rise in federal debt, spurred by tax cuts and emergency spending. History seems to be repeating itself.

Opposition to the Act

OBBBA met with fierce opposition, especially from Democrats. In a powerful speech lasting almost nine hours, House Minority Leader Hakeem Jeffries denounced the Bill as a "one, big ugly bill" and "a disgusting abomination" that "guts" Medicaid. "It rips food from the mouths of children, seniors, and veterans… and rewards billionaires with massive tax breaks". People would die unnecessary deaths as a result, he said.

Academics also criticised it, including Prof. Serge Jaumain in Brussels, who described Trump's fiscal promises as "reckless" and warned that they risk triggering severe long-term social consequences in the US, one of the wealthiest nations in the world. Perhaps the most prominent opponent, however, has not come from the world of politics or academia, but from business and industry.

Until recently a Trump cheerleader, entrepreneur Elon Musk ran Trump's Department of Government Efficiency (DOGE) for the first few months of this presidency, championing aggressive deficit reduction. OBBBA ran counter to these goals. Musk called it a "massive spending bill" that would expand the deficit and undermine economic stability.

Economists share his concerns, warning that OBBBA could significantly increase the national debt, forcing the US to borrow at higher interest rates in the future. The consequences may be far-reaching, threatening America's financial credibility and, by extension, the stability of the global financial system.

As Harvard economist Kenneth Rogoff put it: "In the Middle Ages, it was the court jester who dared to speak uncomfortable truths to the king." Today, the bond market may provide a more honest signal than social media post reactions to Trump comments. Projections suggest the OBBBA will raise the fiscal deficit from 6.4% to 7%+ of GDP, pushing up long-term interest rates.

For Trump, the solution is to press the Federal Reserve to lower short-term rates. His opponents argue that unless the economy slips into recession, the Fed will have little room to cut rates without fuelling inflation, and higher inflation will only accelerate the rise of long-term interest rates and borrowing costs for businesses and consumers alike.

Far from beautiful, then, the world may soon wake up to find that Trump's OBBBA cuts were, in fact, catastrophic and toxic, not just for the US economy and the dollar, but for his Make America Great Again (MAGA) vision.