Our forthcoming book is The Comeback: The 2024 Elections and American Politics. The second Trump administration is off to an ominous start. His reconciliation bill will blow up the debt and his trade policies will blow up the economy.
The Joint Committee on Taxation looks at "The One Big Beautiful Bill Act."
The Joint Committee staff estimates that enacting these provisions would increase the
average annual growth rate of real Gross Domestic Product (“GDP”) by 0.03 percentage points, from 1.83 percent in the present-law baseline to 1.86 percent, over the 2025-2034 budget window. The Joint Committee staff estimates that the macroeconomic effects due to this proposal would increase Federal revenues by about $103 billion. Relative to the conventional revenue effect of about -$3,819 billion, the Joint Committee staff estimates that the proposal would have a total revenue effect of about -$3,716 billion over the budget window.
The Joint Committee staff also estimates that after the budget window, cumulative increases in Federal deficits under the proposal will continue to increase Federal debt as a
percentage of GDP relative to the present-law baseline. While the Joint Committee staff
estimates that labor supply will continue to be higher than projected in the baseline, the growth in Federal debt will increasingly crowd out private investment, reducing the capital stock relative to the baseline. The long-run effect on real GDP remains positive at first—primarily over the second decade following enactment—driven by labor supply effects. However, by the third decade, the crowding-out effect dominates, and real GDP falls below baseline projections. As a result, the budgetary feedback from the macroeconomic effects of the proposal diminishes over time.
Tony Romm and Colby Smith at NYT:
One day after House Republicans approved an expensive package of tax cuts that rattled financial markets, President Trump pivoted back to his other signature policy priority, unveiling a battery of tariff threats that further spooked investors and raised the prospects of higher prices on American consumers.
For a president who has fashioned himself as a shrewd steward of the economy, the decision to escalate his global trade war on Friday appeared curious and costly. It capped off a week that saw Mr. Trump ignore repeated warnings that his agenda could worsen the nation’s debt, harm many of his own voters, hurt the finances of low-income families and contribute far less in growth than the White House contends.
The tepid market response to the president’s economic policy approach did little to sway Mr. Trump, who chose on Friday to revive the uncertainty that has kept businesses and consumers on edge. The president threatened 50 percent tariffs on the European Union, and a 25 percent tariff on Apple. Other tech companies, he said, could face the same rate.
Since taking office, Mr. Trump has raced to enact his economic vision, aiming to pair generous tax cuts with sweeping deregulation that he says will expand America’s economy. He has fashioned his steep, worldwide tariffs as a political cudgel that will raise money, encourage more domestic manufacturing and improve U.S. trade relationships.
But for many of his signature policies to succeed, Mr. Trump will have to prove investors wrong, particularly those who lend money to the government by buying its debt.
So far, bond markets are not buying his approach. Where Mr. Trump sees a “golden age" of growth, investors see an agenda that comes with more debt, higher borrowing costs, inflation and an economic slowdown. Investors who once viewed government debt as a relatively risk-free investment are now demanding that the United States pay much more to those who lend America money.
That is on top of businesses, including Walmart, that say they may have to raise prices as a result of the president’s global trade war. The onslaught of policy changes has also left the Federal Reserve frozen in place, unsure as to when the economy will call for lower interest rates in the face of persistent uncertainty. As a result, borrowing costs for mortgages, car loans and credit cards remain onerous for Americans.
