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Your guide to what Trump’s second term means for Washington, business and the world
Donald Trump is on the verge of securing passage of his flagship tax and spending legislation in the lower chamber of the US Congress.
The sprawling bill, which would slash US taxes and increase spending, is the centrepiece of the president’s second-term agenda and has been at the centre of a fierce battle among Republicans in the House of Representatives.
Lawmakers are divided over spending on health and social care programmes and fears over the country’s ballooning debt. The president has repeatedly intervened to pressure them to pass the bill, last week warning that “we don’t need GRANDSTANDERS in the Republican party”.
What is in the bill?
The thousand-plus-page legislation — dubbed the “One, Big Beautiful Bill Act” by Trump — extends many of the 2017 tax cuts passed during his first term, which are due to expire at the end of the year. These include individual income tax cuts and increased child tax credit, and eliminating taxes on tips and overtime pay, central campaign pledges during last year’s election.
Other measures include increases in estate and gift tax exemptions and a broad array of business tax breaks, as well as more than $50bn to boost border security, including further construction of a wall along the border with Mexico that Trump has vowed to complete.
Republicans reduced the price tag of the bill by slashing nearly $800bn from Medicaid — the US healthcare scheme for the poor — and hundreds of billions more from the food stamp programme and clean energy tax credits. It would also increase taxes on investment income from universities and private foundations, raising more than $22bn, according to the Joint Committee on Taxation.
What happens after it passes in Congress?
Once the legislation is passed by the House, it progresses to the Republican-controlled Senate. There are 100 lawmakers in the upper chamber of Congress and at least 50 of the 53 Republican senators will have to support the bill for Trump to sign it into law.
If the Senate makes any changes to the legislation, it would have to go back to the House for another vote. Since Democrats are overwhelmingly expected to oppose the bill, its fate in the upper chamber will depend on whether Republican majority leader John Thune can craft a compromise between moderate lawmakers such as Susan Collins of Maine and anti- government spending hardliners such as Mike Lee of Utah and Rand Paul of Kentucky.
As is the case in the House, however, there will be overwhelming pressure from Trump for his party to back the legislation.
How will it affect America’s public finances?
Analysis by independent bodies such as the non-partisan Committee for a Responsible Budget and the University of Pennsylvania’s Wharton School say the bill will add $3.3tn to US debt over the next 10 years.
This means the debt-to-GDP level of the world’s largest economy would jump from 98 per cent to 125 per cent by the end of the period — a level well in excess of the previous high, reached in the aftermath of the second world war.
Trump’s team says the legislation, along with pro-growth policies such as lower taxes and deregulation, will help halve the US’s yawning fiscal deficit, which stood at 6.4 per cent as of 2024, to just 3 per cent by the end of his term.
The president’s Council of Economic Advisers claims the bill will boost real economic growth by up to 5.2 per cent over the next four years, creating or saving up to 7.4mn jobs and raising investment by up to 14.5 per cent over the next four years.
But others warn that the effect of the tax cuts and other measures will undermine the US economy. They “could have an effect in boosting growth but certainly not enough to offset the effect on the US debt-to-GDP ratio of the reconciliation bill”, said Maury Obstfeld, former chief economist at the IMF, who is now at the Peterson Institute think-tank.
He added that, just days after the US lost its triple-A credit rating, the bill “could put the US Treasury on the road to triple-B status”.
What will it mean for Trump?
The legislation’s passage is crucial to the president’s second-term agenda and he would claim it as a big political victory. He will also be hoping it will improve his approval rating, which stand sat 47.3 per cent, according to the RealClearPolitics polling average.
If lawmakers had failed to approve the bill, tax rates would have increased across the board next year, delivering a fiscal hit to households and business during the year of the midterm elections.
However, the legislation could backfire for Trump. Democratic party attacks on his original 2017 tax cuts helped it recapture control of the House in the 2018 midterms.
