Republicans battle to pass a profligate but insubstantial law
July 2nd 2025WASHINGTON, DC
IN GREEK MYTHOLOGY the chimera was part lion, part goat and part snake, but wholly monstrous. Despite its name, there is a chimerical air to the One Big Beautiful Bill Act (BBB), the Republican tax-and-spending plan lurching through Congress this week. It sutures to a body of government-shrinking Reaganism an appendage of populist Trumpism, both disfigured by carve-outs and fillips for individual lawmakers. It will menace the American economy for at least a decade.
To be fair, getting any legislation through Congress these days is an ugly and ungainly process: a cramming of every possible policy into one “omnibus” bill, negotiated up to the last minute by congressional leadership and destined to pass largely unread by the rank and file. In addition to institutional sclerosis, however, the BBB is a showcase for fiscal incontinence and ideological exhaustion. It extends existing, lavish, deficit-financed tax cuts well into the future, and adds a few more for good measure, as well as boosting spending on defence and immigration enforcement. It offsets some of the cost by cancelling green subsidies and cutting health care and welfare for the poor, but nonetheless enormously increases America’s debt. And to secure enough votes for this unappealing combination it is freighted with pet provisions intended to buy the acquiescence of particular lawmakers, such as a $50,000 tax deduction for Native American whaling captains that is dear to the heart of Lisa Murkowski, a wavering Republican senator from Alaska.
As this article was published, Congress was rushing to sign off on the BBB before the Fourth of July holiday. The Senate approved it by the thinnest of margins on July 1st, with J.D. Vance, the vice-president, casting a tie-breaking vote in favour. It cleared the House of Representatives in May, again by a single vote. But since the two chambers passed different versions of the bill, they must now agree on a uniform one. Fiscal hawks in the House grumble that the Senate’s version is too profligate (although the House’s version is hardly parsimonious). Senators have already decamped to their home states to light their barbecues, so if the House demands changes to the bill, there will be no one from the upper chamber to approve them until after the weekend.
After the fireworks, more fireworks
But even if the bill is delayed by this congressional back and forth, it is likely to win approval eventually, in a broadly similar form, and indeed to become the signature legislative achievement of Donald Trump’s second term in office. That makes the bill’s lack of any clear or consistent ideological underpinning all the more striking. Mr Trump has indelibly altered America’s politics, but he is failing to reshape its economy to anywhere near the same degree.Understanding how this happened involves returning to 2017, the first year of Mr Trump’s first term. Uninterested in the tiresome details of legislating, and in only jerky control of the reins of the presidency, Mr Trump turned over his congressional agenda to Paul Ryan and Mitch McConnell, at the time the Republican leaders in the House and Senate, respectively. After first trying and failing to repeal the Obamacare health reforms, Mr McConnell and Mr Ryan, whose passions include deregulation and the libertarian writings of Ayn Rand, turned their attention to rewriting the tax code, winning the approval of legislation called the Tax Cuts and Jobs Act (TCJA).
The TCJA was typical, pre-Trumpian Republicanism shepherded into law by two men who today have been largely sidelined in the party (although Mr McConnell cast one of the votes in favour of the BBB in the Senate). It cut corporate-tax rates permanently, from 35% to 21%, and markedly reduced rates for individuals, too, but only temporarily. This was a ruse designed to get around congressional rules: pretending that the tax cuts would expire in theory limited the long-term cost of the bill. But the assumption at the time was that a future Congress would extend the tax cuts rather than allow them to lapse as scheduled. That, after all, is what happened when George W. Bush initiated “temporary” tax cuts in 2001, which Barack Obama subsequently felt obliged to make permanent, for the most part.
Burnt by his own sparkler
Chart 1: The Economist
By happenstance, Mr Trump, who lost the presidency in 2020 but won it again in 2024, is the president who must catch the fiscal hot potato this time. Extending the tax cuts for individuals in the TCJA is extremely expensive. Some of them, including generous standard deductions and a big credit for parents, are claimed by vast numbers of Americans. But other elements of the BBB, such as keeping top marginal rates at 37% instead of 39.6%, allowing bigger deductions for state and local taxes (SALT) and exempting more wealth from estate tax, benefit the richest. What is more, to the extent the bill makes up for the lost revenue, it does so by trimming Medicaid (government health insurance for the poor) and food stamps (subsidies for food for the poor). An evaluation of the House’s version of the BBB estimates that 12m people would lose health insurance through a variety of cuts and the addition of bureaucratic hurdles. The Congressional Budget Office (CBO) calculated that the net effect of the bill would be regressive, with the poorest 30% being worse off than before, while the richest 10% would see their income after taxes and transfers increase by 2.3% (see chart 1).
A large, regressive, deficit-funded tax cut is not unusual in Republican circles: those parts of the BBB resemble the policies of Ronald Reagan and Mr Bush. But all this sits awkwardly with Trumpian populist economics, which has a more progressive streak. Some members of Mr Trump’s MAGA coterie, such as Steve Bannon, a close adviser in his first term, have criticised the cuts to Medicaid, noting that they disproportionately affect supporters of the president.
Some of Mr Trump’s eye-catching campaign pledges, such as eliminating taxes on tips and overtime pay and introducing a tax break on car loans, are included in the BBB. Arcane Senate rules prevent Mr Trump from exempting Social Security (the state pension) from tax, as he pledged, so the elderly instead get a bigger standard deduction. There is also a plan to create “Trump accounts” for newborns, seeded with an initial payment of $1,000 from the federal government. But all these are set to expire as he leaves office in 2029.
The notional expiry is a repeat of the same gimmick employed in the TCJA: these tax breaks would cost $500bn if they lasted for a decade. But their temporariness is nonetheless telling. Although Mr Trump is enamoured with exercising executive power and has made rank-and-file Republicans submissive to his whims, he shows the same indifference towards legislative matters as in his first term. He merely wishes to sell whatever is presented to him as, in his words, “arguably the most significant piece of Legislation that will ever be signed in the History of our Country”. He has left the dead hands of the past, in effect, as puppeteers of the BBB. It is zombie Reaganism or perhaps zombie Ryanism, jokes Oren Cass of American Compass, a think-tank that hopes to chart a new course for the right.
As a result, Trumponomics seems unlikely to transform America in the way that Franklin Roosevelt did through the New Deal or Lyndon Johnson did through the Great Society. To enact lasting change requires considered legislation. Mr Trump has shirked that in favour of the more immediate satisfaction of imposing tariffs by presidential penstroke and dispatching lieutenants to say, “You’re fired!” to thousands of federal employees.
That which is done by presidential fiat is very easily undone by presidential fiat, however. Mr Trump has dramatically raised tariffs: the average rate on goods imported into America is currently 15.6%, or more than six times the level before he became president in January. But he has raised them unilaterally, through an expansive reading of his emergency powers which is currently being contested in court. When Elon Musk was still within the president’s orbit, he was dispatched to run amok through the federal government. But many of the firings and other cuts he ordained have been reversed by court order. These are not durable ways to implement economic policy. Americans still speak of the Reagan revolution, Bill Clinton’s welfare reform and Obamacare. What programme will they remember Mr Trump by?
Chart 2: The Economist
They may simply remember his profligacy. Wonks are still crunching the numbers on the version of the BBB passed by the Senate, but preliminary estimates suggest it would add some $4.5trn to American debt over the coming decade. The CBO expects America to run an average annual fiscal deficit of 5.8% of GDP over the coming decade; the BBB would increase that by a further 1.25 percentage points. America would end up with public debt of more than 120% of GDP (see chart 2).
The White House has devised a fiscal fantasyland to dispense with such tiresome facts, in which the BBB initiates such breakneck growth that revenues soar and debt plummets. The Council of Economic Advisers (CEA) put out a report that predicts that the BBB will add more than a percentage point to annual GDP growth and that there would be “$8.5trn to $11.1trn in total offsetting deficit reduction from Trump economic policies anchored by the BBB”. Heroically, the council predicts that, by the end of this halcyon era, the national debt will have fallen to 94%.
This is, sadly, preposterous. The BBB is largely a continuation of existing policy, so extending it will not generate a new wave of growth. Some provisions encourage investment: businesses are able to deduct research and development costs from their tax bills in full and depreciate their assets more rapidly. Independent modellers, however, think this would spur a fraction of the growth the White House is promising. The CEA gets its maths to work by assuming not only that Mr Trump will manage to unleash America’s animal spirits through deregulation, but also that he will convince Congress to slash spending (the opposite of what it has been doing this week) and that his tariffs will raise trillions for the Treasury.
It is a big, beautiful fairy tale. A good indication of how much credence Republicans lend these rosy forecasts is the Senate’s decision to include a clause in the BBB to raise the cap on the federal government’s debt by $5trn. A fiscal reckoning is inevitable, and not that far off. The trust funds that make Social Security and Medicare payments are expected to run out of money in 2032, which would force either cuts to benefits or a hefty new burden on budgets. It will be a daunting fiscal hurdle for Mr Trump’s successor.
In the meantime, the spending cuts the BBB does make will foster other problems. Many Medicaid recipients will, for the first time, be obliged to work, under the euphemistic label of “community engagement requirements”. When a similar rule was tested in Arkansas in 2018, nearly a quarter of those subject to the new rules lost coverage before a federal judge ended the experiment. People will fall off the rolls not only because they are not in work but also because they do not complete all the necessary paperwork (the BBB also requires states to reassess recipients’ eligibility for Medicaid every six months rather than every year). Costs would shift from the federal government onto the states. The House version of the bill would have reduced Medicaid spending by $800bn and result in 8m people being uninsured, according to the CBO. Another 3m who obtain health insurance through Obamacare would lose coverage too, because of new restrictions. Congress also seems likely to let tax credits for insurance for a further 5m people lapse.
Republicans have taken a similar approach to food stamps: states would have to start shouldering some of the cost and recipients would be subject to more stringent work requirements. “The [existing] work requirements have been pretty toothless for the last 15 or 20 years. There was this temporary expansion during the Great Recession, but in some sense, it didn’t go away. There was an expansion during the covid pandemic,” says Scott Winship of the American Enterprise Institute, a conservative think-tank. The upshot for food stamps may be nearly $300bn less in spending and 1.3m fewer recipients. Republicans claim that the models are too pessimistic and that the changes will encourage more Americans into employment; they are also taking the precaution of delaying the start of the work requirements until after the midterm elections next year.
Another big source of spending reductions in the BBB is the abolition of hundreds of billions of dollars’ worth of green subsidies enacted by Mr Trump’s predecessor, Joe Biden. Mr Biden’s main legislative achievement, a climate-spending bill called the Inflation Reduction Act, would be largely rescinded: tax credits for wind and solar energy would stop. Subsidies for electric vehicles, heat pumps and other energy-efficient building expenses would also be cut off. This is one of the sources of contention between the House and the Senate, which made the withdrawal of the credits marginally less abrupt. But clean-energy projects would still have to begin construction within a year of the bill’s enactment to receive the tax credits—a tall order given all the permits and approvals required.
Priming the barbecue
At the same time the BBB restarts leasing of federal land for new oil and gas projects (and even coal mines). It instructs the interior secretary to conduct at least 30 auctions of offshore oil and gas leases in the “Gulf of America”. Zero Lab, a research group at Princeton University, has estimated that the legislation would increase America’s emissions of carbon dioxide by 500m tonnes in 2030 (roughly 10% more than would be emitted in the BBB’s absence). Last-minute changes to the bill might make this worse.The savings from slashing Medicaid and green subsidies are partially redirected to some of Mr Trump’s preoccupations. Defence and immigration enforcement would both receive an extra $150bn or so. Some of the added military spending is for long-standing priorities of China hawks, including the modernisation of America’s nuclear weapons and shipbuilding. Mr Trump’s idea of a “Golden Dome” to shield the continental United States from missile attacks would receive $25bn.
The BBB caters to the administration’s every whim as far as immigration is concerned. The Senate bill sets aside nearly $50bn to pay for the construction of Mr Trump’s long-promised wall along the Mexican border. Another $45bn is set aside for new facilities to detain migrants and a further $35bn to recruit and pay bonuses to officers of America’s border-patrol and immigration-enforcement agencies. The administration’s talk of deporting 1m migrants a year seemed far-fetched at previous funding levels; this surge in spending might enable Mr Trump to come much closer to accomplishing it. Unlike the safety-net provisions, these are not controversial among Republicans and will in all likelihood become law, whatever the back-and-forth between House and Senate.
Every president is entitled to pursue the agenda he campaigned on in Congress. And, in the case of Mr Trump in particular, it is better that he does so through the regular channels instead of trying to govern through executive action and raising the spectre of defying the judiciary when it pushes back against his power grabs. Still, no serious backer of BBB could dispute its chimerical ugliness. Most tax reforms aim to simplify the tax code; this legislation makes it much more complicated, in order to satisfy Mr Trump’s campaign pledges and in order to induce enough congressional Republicans to vote for it.
The serious deficit consequences—at a time when interest rates and inflation risks are high—are being waved away by a Republican Party that preaches about fiscal discipline when out of power, and spends with reckless abandon when in it. The loss of health insurance for millions of Americans would not just be a loss for those affected; it would also be an albatross around the neck of whichever Republican candidate succeeds Mr Trump in 2028 (who will also have to explain the impending insolvency of America’s entitlement programmes).
Summer sizzler
The fevered process of rushing the bill through Congress before the Fourth of July hints at its flaws and inconsistencies. The Republican leadership kept coming up with fresh sops for wavering senators, only to be told that these bribes broke the Senate’s rules. Some lawmakers want to make the bill less regressive by softening the cuts to Medicaid; others want to make it more regressive by boosting the deduction for SALT. There have been complaints both that green subsidies are being cut too quickly and that they aren’t being extirpated fast enough.Mr Musk, the Republicans’ biggest donor at last year’s election, has declared himself horrified by the bill’s profligacy. He has pledged to set up a new political outfit if it passes, the America Party, to try to unseat Republicans who voted for it. Mr Trump was so enraged by Thom Tillis, one of three Republican senators to vote against the bill, that he threatened to drum up a primary challenger to him at the next election, whereupon Mr Tillis announced that he would not seek re-election. Thunderstorms, whether divinely ordained or simply unlucky, prevented several congressmen from flying to Washington to vote on the bill, prompting mad dashes across the country by car.
The frantic manoeuvring is understandable, because Congress must get a tax bill of some sort approved if it does not want to inflict big tax rises on voters when the TCJA cuts expire at the end of the year. But there are many ways to accomplish this, and Republicans have chosen perhaps the most improvident option available. The old saw about bankruptcy is that it happens slowly and then all at once. The bond markets are not panicking—the dollar’s status as the world’s reserve currency helps to ward off such a crisis. But in a decade’s time, things may look different. When the history is written then of what went wrong, expect a chapter or two to be devoted to the big, baleful behemoth of the BBB. ■
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