Trump’s “big and beautiful” bill sparked heated debate: it can save the fiscal crisis in the short term, but it will plant a debt bomb in the long term!
2025-07-04 14:01:03
In recent years, the US fiscal problem has been the focus of global economic attention. The latest tax and spending bill (the "Big and Beautiful" bill) passed by the Trump administration has successfully avoided the crisis of government debt default in the short term, but its impact on future fiscal health has sparked widespread controversy. This bill not only extends the 2017 tax cut policy, but also significantly increases border security and military spending, while cutting the budgets for Medicare and Medicaid, casting a shadow on the long-term debt problem of the United States.
Urgent steps to avoid default
On Thursday (July 3), the U.S. Congress passed the tax cut and spending bill proposed by Trump, successfully avoiding the government's possible default crisis due to the debt ceiling issue. The current total debt of the United States has reached 36.1 trillion U.S. dollars, and it is expected to hit the borrowing limit later this summer. In response to this imminent "X Day" (the date when the Treasury Department is unable to repay all debts, which is expected to arrive in late August or early September), the bill raised the debt ceiling by 5 trillion U.S. dollars. This move temporarily eased market concerns about U.S. debt default and bought the government more time to deal with fiscal problems.
The birth of the bill and political game
The bill, which was passed by Republicans in the House of Representatives, reflects the Trump administration's consistent economic policy tendencies. The bill not only continues the core content of the 2017 tax cut policy, but also increases huge investments in border security and the military, while making significant cuts to Medicare and Medicaid. Although these measures were passed in the short term, their long-term consequences have sparked heated debate among economists and investors.
Tax cuts: Stimulate the economy or increase the deficit?
One of the core contents of the bill is to extend the 2017 tax cuts and provide companies with tax breaks for equipment purchases and R&D costs. According to the Congressional Budget Office, this tax cut will reduce tax revenue by $4.5 trillion over the next 10 years. Supporters believe that tax cuts will stimulate corporate investment and economic growth and inject vitality into the market. However, critics point out that such a large-scale tax cut will further expand the fiscal deficit and add pressure to the already high US debt.
Spending adjustment: Military takes priority, medical care is under pressure
In terms of spending, the bill significantly increased border security and military spending, aiming to strengthen national security and infrastructure. However, in order to balance the budget, the bill cut funding for Medicare and Medicaid by $1.1 trillion, which is expected to cause 10.9 million people to lose federal health insurance. This decision has sparked widespread controversy from all walks of life, especially the impact on low-income groups.
A temporary solution to the debt ceiling
By raising the debt ceiling by $5 trillion, the bill provides the government with greater fiscal flexibility and avoids the risk of default in the short term. However, this move only postpones the problem rather than completely solves it. Analysts predict that the additional debt will increase the total US debt by $3.4 trillion over the next 10 years, further exacerbating the deterioration of fiscal health.
Fluctuations in U.S. Treasury yields and bond market pressures <br/>After the bill was passed, market concerns about the U.S. fiscal situation were quickly reflected in the bond market. The 10-year U.S. Treasury yield rose sharply to a one-week high on Thursday, partly due to investors' concerns about fiscal deficits and increased debt. Mike Medeiros, a macro strategist at Wellington Management, pointed out that the bill has exacerbated market concerns about continued fiscal deficits and high debt levels, while potentially pushing up inflationary pressures. BlackRock also warned that foreign investors' demand for U.S. Treasuries is weakening, and the market, which issues $500 billion in bonds each week, may face higher borrowing costs.
Bond Guardians' warning
Andrew Brenner, head of international fixed income at National Alliance Capital Markets, attributed the current market reaction to the actions of "bond warriors." These investors punish unsustainable fiscal policies by pushing up government borrowing costs. Brenner said in a report that the bond market wants to see more substantial deficit reductions, and the measures of the Trump administration and Congress have clearly failed to meet this expectation.
Economic stimulus and risks coexist <br/>Although the bill may stimulate economic growth in the short term through tax cuts and spending, Campe Goodman, fixed income portfolio manager at Wellington Management, expects the bill to increase economic growth by 0.5% in 2026. However, he also warned that the market is too optimistic about the long-term risks of rising borrowing costs. Ellen Hazen, chief market strategist at FL Putnam Investment Management, believes that the bill will drive corporate earnings growth and thus boost stock market performance, but high debt and rising U.S. Treasury yields may weaken the attractiveness of fixed income investments.
Short-term positives: Corporate earnings and stock market gains
In the short term, the tax cuts and spending increases in the bill are expected to create more profit opportunities for companies and push the stock market higher. In particular, tax incentives for equipment investment and research and development may stimulate growth in industries such as technology and manufacturing, injecting new vitality into the economy.
Long-term hidden dangers: debt crisis and inflationary pressure
However, the long-term impact of the bill is not optimistic. The additional $3.4 trillion in debt and $4.5 trillion in reduced tax revenue will further worsen the US fiscal situation. Market concerns about additional bond supply may push up borrowing costs, while rising inflationary pressures may force the Federal Reserve to adjust its monetary policy, further affecting global financial markets.
Social impact: The controversy over health care cuts
The cuts to Medicare and Medicaid will have a profound impact on the lives of millions of Americans. This policy is likely to exacerbate social inequality and trigger more political and social controversy. How to find a balance between economic growth and social welfare will be a major challenge facing the U.S. government in the coming years.
Trump's tax and spending bill successfully avoided the debt default crisis in the short term, however, its high fiscal costs and cuts to the medical field have laid greater hidden dangers for the future. Market concerns about rising U.S. bond yields and inflationary pressures are intensifying, and the actions of the "Bond Guardians" show that investors' dissatisfaction with the fiscal health of the United States is rising. In the future, the United States needs to find a balance between economic growth, debt management and fair distribution to avoid a more serious fiscal crisis. For investors, paying close attention to the subsequent impact of the bill and the dynamic changes in the market will be the key to dealing with uncertainty.
Background of the bill: Dealing with the debt ceiling and fiscal pressure
Urgent steps to avoid default
On Thursday (July 3), the U.S. Congress passed the tax cut and spending bill proposed by Trump, successfully avoiding the government's possible default crisis due to the debt ceiling issue. The current total debt of the United States has reached 36.1 trillion U.S. dollars, and it is expected to hit the borrowing limit later this summer. In response to this imminent "X Day" (the date when the Treasury Department is unable to repay all debts, which is expected to arrive in late August or early September), the bill raised the debt ceiling by 5 trillion U.S. dollars. This move temporarily eased market concerns about U.S. debt default and bought the government more time to deal with fiscal problems.
The birth of the bill and political game
The bill, which was passed by Republicans in the House of Representatives, reflects the Trump administration's consistent economic policy tendencies. The bill not only continues the core content of the 2017 tax cut policy, but also increases huge investments in border security and the military, while making significant cuts to Medicare and Medicaid. Although these measures were passed in the short term, their long-term consequences have sparked heated debate among economists and investors.
Detailed explanation of the bill: a double-edged sword of tax cuts and spending
Tax cuts: Stimulate the economy or increase the deficit?
One of the core contents of the bill is to extend the 2017 tax cuts and provide companies with tax breaks for equipment purchases and R&D costs. According to the Congressional Budget Office, this tax cut will reduce tax revenue by $4.5 trillion over the next 10 years. Supporters believe that tax cuts will stimulate corporate investment and economic growth and inject vitality into the market. However, critics point out that such a large-scale tax cut will further expand the fiscal deficit and add pressure to the already high US debt.
Spending adjustment: Military takes priority, medical care is under pressure
In terms of spending, the bill significantly increased border security and military spending, aiming to strengthen national security and infrastructure. However, in order to balance the budget, the bill cut funding for Medicare and Medicaid by $1.1 trillion, which is expected to cause 10.9 million people to lose federal health insurance. This decision has sparked widespread controversy from all walks of life, especially the impact on low-income groups.
A temporary solution to the debt ceiling
By raising the debt ceiling by $5 trillion, the bill provides the government with greater fiscal flexibility and avoids the risk of default in the short term. However, this move only postpones the problem rather than completely solves it. Analysts predict that the additional debt will increase the total US debt by $3.4 trillion over the next 10 years, further exacerbating the deterioration of fiscal health.
Market reaction and long-term risks
Fluctuations in U.S. Treasury yields and bond market pressures <br/>After the bill was passed, market concerns about the U.S. fiscal situation were quickly reflected in the bond market. The 10-year U.S. Treasury yield rose sharply to a one-week high on Thursday, partly due to investors' concerns about fiscal deficits and increased debt. Mike Medeiros, a macro strategist at Wellington Management, pointed out that the bill has exacerbated market concerns about continued fiscal deficits and high debt levels, while potentially pushing up inflationary pressures. BlackRock also warned that foreign investors' demand for U.S. Treasuries is weakening, and the market, which issues $500 billion in bonds each week, may face higher borrowing costs.
Bond Guardians' warning
Andrew Brenner, head of international fixed income at National Alliance Capital Markets, attributed the current market reaction to the actions of "bond warriors." These investors punish unsustainable fiscal policies by pushing up government borrowing costs. Brenner said in a report that the bond market wants to see more substantial deficit reductions, and the measures of the Trump administration and Congress have clearly failed to meet this expectation.
Economic stimulus and risks coexist <br/>Although the bill may stimulate economic growth in the short term through tax cuts and spending, Campe Goodman, fixed income portfolio manager at Wellington Management, expects the bill to increase economic growth by 0.5% in 2026. However, he also warned that the market is too optimistic about the long-term risks of rising borrowing costs. Ellen Hazen, chief market strategist at FL Putnam Investment Management, believes that the bill will drive corporate earnings growth and thus boost stock market performance, but high debt and rising U.S. Treasury yields may weaken the attractiveness of fixed income investments.
Future Outlook: Opportunities and Challenges Coexist
Short-term positives: Corporate earnings and stock market gains
In the short term, the tax cuts and spending increases in the bill are expected to create more profit opportunities for companies and push the stock market higher. In particular, tax incentives for equipment investment and research and development may stimulate growth in industries such as technology and manufacturing, injecting new vitality into the economy.
Long-term hidden dangers: debt crisis and inflationary pressure
However, the long-term impact of the bill is not optimistic. The additional $3.4 trillion in debt and $4.5 trillion in reduced tax revenue will further worsen the US fiscal situation. Market concerns about additional bond supply may push up borrowing costs, while rising inflationary pressures may force the Federal Reserve to adjust its monetary policy, further affecting global financial markets.
Social impact: The controversy over health care cuts
The cuts to Medicare and Medicaid will have a profound impact on the lives of millions of Americans. This policy is likely to exacerbate social inequality and trigger more political and social controversy. How to find a balance between economic growth and social welfare will be a major challenge facing the U.S. government in the coming years.
Summary: Short-term emergency, long-term concerns
Trump's tax and spending bill successfully avoided the debt default crisis in the short term, however, its high fiscal costs and cuts to the medical field have laid greater hidden dangers for the future. Market concerns about rising U.S. bond yields and inflationary pressures are intensifying, and the actions of the "Bond Guardians" show that investors' dissatisfaction with the fiscal health of the United States is rising. In the future, the United States needs to find a balance between economic growth, debt management and fair distribution to avoid a more serious fiscal crisis. For investors, paying close attention to the subsequent impact of the bill and the dynamic changes in the market will be the key to dealing with uncertainty.
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