As expected, the 2017 tax cuts are being made permanent. Additional cuts are also being introduced, including an exemption on tips and overtime, deductions for seniors, and an increase in the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 (this allows households, in particular, to deduct their property taxes from their federal income tax). These cuts are scheduled to expire in 2028 or 2029, while spending cuts are expected to escalate over time, provided that the Republican Party retains its majority in Congress in the November 2026 midterm elections.
Key takeaways
-
The One Big, Beautiful Bill Act (OBBBA), signed by President Trump on 4 July, marks a significant shift in US fiscal policy. Narrowly passed by Congress, the bill embodies the core of Trump’s second-term agenda, combining substantial tax cuts with unprecedented cuts to social programmes and increased security spending.
-
The OBBBA is a patchwork of regressive measures that exacerbate inequality, impede the energy transition, and significantly increase US public debt.
-
However, these measures stimulate the US economy in the short term, by around 0.2pp, because spending cuts come next year. But much of this could be offset by increased interest payments on debt and higher tariffs. However, any short-term economic performance should not obscure the exorbitant cost of the OBBBA and its adverse social effects in the medium term. Ultimately, we believe that it poses a further threat to the future of US economic power.
-
The tax cuts are estimated to cost $4.5 trillion over ten years, with only $1.5 trillion in spending savings, which would increase the debt by more than $3 trillion.
A costly undertaking
Unsurprisingly, green subsidies are cut under the new multi-year budget, including the elimination of numerous incentives for renewable energy and the scrapping of the tax credit for electric vehicle purchases in September 2025, in favour of measures promoting fossil fuels and nuclear power. In addition, social assistance is being cut: 12 million people could lose access to Medicaid and the SNAP food assistance programme.
However, increased spending on security and defence has been allocated for: $170 billion to border security and $150 billion to defence.
Overall, the tax cuts are estimated to cost $4.5 trillion over ten years, with only $1.5 trillion in spending savings, which would increase the debt by more than $3 trillion.
You can now read the full whitepaper at the link below
