This week, attention in Washington has been fixed on the United States’ (US) President Donald Trump’s so-called “Big Beautiful Tax Bill.” Promoted as a landmark achievement, the bill sparked fierce debate but was ultimately passed. We consider its impact on American society and the US economy below.
What’s in the bill?
At its core, the bill seeks to extend and make permanent the tax cuts first enacted in 2017, which were scheduled to expire at the end of 2025. It also introduces new tax breaks, including permanent reductions in individual and corporate tax rates. Workers can now deduct tips and overtime pay, while seniors earning less than $75,000 will receive a new $6,000 deduction. The bill raises the cap on State and Local Tax deductions from $10,000 to $40,000 for five years and increases the child tax credit from $2,000 to $2,200 per child. On the other hand, it accelerates the phase-out of clean energy tax credits, ending incentives for electric vehicles and renewable energy investments.
Additionally, the bill includes substantial new spending – about $350 billion – for defence and border security, including funding for the US-Mexico border wall and expanded immigration enforcement.
How is it paid for?
To offset the cost of these tax cuts and spending increases, the bill will enact deep cuts to social safety-net programs. Medicaid and food assistance will see significant reductions, with new work requirements imposed on many adult recipients. States are required to share more responsibility for food assistance, facing penalties for payment errors. Other welfare programmes, particularly those related to health and nutrition, now also face cuts.
Criticism and political fallout
The bill has drawn intense criticism from Democrats and even some Republicans. Democrats argue that the bill enriches those who are already wealthy while stripping healthcare and food from working families, children, veterans, and seniors – and that the tax cuts for these groups are insufficient to offset the reduction in aid. They warn of dire consequences for the most vulnerable Americans. Some moderate and conservative Republicans have also expressed concern about the scale of cuts to social programs and the trillions the bill would add to the national debt. The House vote has been contentious, with party leaders struggling to secure enough support amid internal divisions. Outside Congress, policy analysts and advocacy groups have highlighted the regressive nature of the tax cuts and the potential for increased inequality.
Impact on the budget deficit
The nonpartisan Congressional Budget Office projects that the bill will add between $2.4 trillion and $3.3 trillion to the federal deficit over the next decade. The bulk of this increase comes from the extension of the 2017 tax cuts, with additional contributions from new tax breaks and increased spending on defence and border security. This would push the US national debt, already at a record high, even higher – raising concerns about long-term fiscal sustainability.
Knock-on effects
The bill’s consequences are likely to be far-reaching. Economic inequality will likely worsen, as the lowest-income Americans will see only modest tax relief, while the wealthiest will benefit substantially more. Millions will lose access to Medicaid and food assistance, with warnings that millions more could be left uninsured. States will face higher costs for administering food assistance, especially if they have high error rates. The accelerated rollback of clean energy credits will also halt hundreds of billions of dollars in planned investments, affecting jobs and climate goals. Politically, the bill’s passage could reshape the coming midterm elections, with both parties using it as a rallying point for their respective bases.
Trump’s “Big Beautiful Tax Bill” is a sweeping and controversial package that will reshape the US tax code, social safety-net, and fiscal outlook for years to come. Supporters argue it will boost take-home pay and economic growth, while critics warn of deepening inequality, a ballooning deficit, and a frayed social contract where citizens’ rights are weakened or removed. With the final vote cast and the successful passing of the bill, the nation watches closely.
MARKET MOVES
Bond markets on edge amid mixed global signals
The US 10-year Treasury yield rose to 4.34% following stronger-than-expected June payrolls data – 147,000 new jobs and a drop in unemployment to 4.1% – which reduced the odds of a Fed rate cut in September to around 80%. Investor concern also mounted over fiscal sustainability as President Trump’s $3.3 trillion tax-and-spending package is expected to widen the budget deficit, further pressuring yields upwards.
In Europe, Germany’s 10-year Bund yield hovered at 2.6%, reflecting the European Central Bank’s (ECB’s) cautious tone amid trade friction and euro strength. With the ECB likely to cut rates just once more this year, markets are adjusting to a more patient stance from policymakers.
United Kingdom (UK) 10-year Gilts eased to 4.54% after Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves emphasised fiscal responsibility, providing markets with reassurance after recent political shifts. The Bank of England (BoE) remains watchful, leaning toward rate cuts while warning of lingering inflation risks.
Stocks rally globally, led by AI and fiscal progress
Global equities extended their rally into July, driven by solid corporate earnings, easing geopolitical tensions, and progress on fiscal policy. The S&P 500 surged to a fresh record high, underpinned by a tech-led rally. Standouts like Cadence Design Systems and Synopsys jumped around 5% on artificial intelligence (AI) momentum and renewed access to Chinese markets following the easing of US export restrictions. Investor sentiment was further boosted by the passage of Trump’s “Big Beautiful Tax Bill” and positive signals in trade talks with Vietnam.
In Europe, the DAX climbed to 23,902, fuelled by shared optimism with US markets. The EURO STOXX 50 also gained, led by strength in the industrials and tech sectors. The UK’s FTSE 100 rebounded to close the quarter up 2.1%, helped by better-than-expected UK private sector growth and assurances from the new government on fiscal prudence. Year-to-date gains now exceed 7%.
Gold gains, oil slips as fiscal and trade risks weigh
Gold advanced to around $3,330/ounce, maintaining a solid position due to lingering uncertainty about how Trump’s “Big Beautiful Tax Bill” will impact the US deficit and the risk of new global trade tariffs, as the 90 day window for negotiations closes next week..
Oil markets are trending lower, with Brent crude falling to approximately $68.50/barrel. Market sentiment has been shaped by speculation that the expanded Organisation of the Petroleum Exporting Countries, OPEC+, may increase output at its upcoming meeting, adding to downward pressure. Nonetheless, medium-term forecasts remain positive, with some analysts expecting higher average prices in 2025 due to persistent supply constraints outside OPEC and steady demand growth. Geopolitical factors remain in play, particularly US sanctions on Iran, which have added a layer of uncertainty to the global supply picture.
Dollar firm on data and deficits; rand shines on local calm
The US Dollar Index saw a rapid move above the 97 mark, buoyed by solid June jobs data and reduced expectations for near-term rate cuts, but was unable to hold on to the momentum. This morning, it fell just below the 97 mark. The dollar continues to face weakening pressure, with key elements such as Trump’s tax cuts, the ongoing implementation of trade agreements and global trade tariffs, and strong US data all remaining in focus.
The euro has weakened to $1.16/€, reversing recent gains as investors turn defensive amid robust US economic data and a more reserved ECB. Eurozone concerns over trade disruptions and geopolitical risks continue to weigh on sentiment.
Sterling has dipped to $1.36/£, giving up ground, despite assurances from the UK government on economic stability. Markets are now factoring in a possible BoE rate cut as early as August, contributing to the pound’s weakness.
*All information and data is as at the time of writing.
Key indicators:
GBP/USD: 1.3656
GBP/EUR: 1.1602
GBP/ZAR: 24.00
GOLD: $3,337
BRENT CRUDE: $68
Sources: Trading Economics, WSJ, S&P Global, Statista, Aljazeera, Euronews, Bloomberg, NY Times and Daily Maverick.
Written by Citadel Advisory Partner and Citadel Global Director, Bianca Botes.
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