How will Trump's megabill affect you? Republicans have passed the 'big, beautiful bill' through Congress
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Now that the budget bill has passed Congress, we can better understand its projected impact on deficits, government debt, and debt servicing costs.
In short, the bill is expected to result in annual government spending of approximately $7 trillion, with revenues coming in at about $5 trillion per year. This means the national debt—which currently stands at roughly six times annual government revenue, equivalent to 100% of GDP, or around $230,000 per American family—will rise over the next decade to about 7.5 times annual revenue, 130% of GDP, and $425,000 per family.
As a result, interest and principal payments on the debt are expected to increase from about $10 trillion (with $1 trillion in interest) to $18 trillion (including $2 trillion in interest). This will likely force either severe cuts in public spending, massive tax hikes, or large-scale money printing, which would devalue the currency and suppress interest rates to undesirable levels.
Such monetary expansion is harmful for bondholders and ultimately undermines U.S. credit markets. Since U.S. Treasury markets form the foundation of global capital markets—and by extension, our economic and social systems—this poses a systemic risk. Unless corrective measures are taken soon to reduce the current budget deficit (currently around 7% of GDP) down to about 3% through adjustments in spending, taxation, and interest rates, significant economic disruptions are likely to follow.
Why This Matters
Over my 50 years as a global macro investor, I’ve developed principles for understanding how economies and markets function. These insights help anticipate trends and make informed decisions. The most relevant principle today is this: when countries face excessive debt, policymakers often resort to lowering interest rates and devaluing their currency as the preferred strategy.
This approach is favored because it’s subtle and politically easier to implement than austerity or major tax increases. While it offers short-term relief—stimulating growth and lifting asset prices—it creates long-term challenges. Lower real interest rates reduce returns on bonds and other fixed-income assets, discourage savings, and encourage further borrowing, thereby increasing total debt burdens over time.
Short-Term Gains vs. Long-Term Pain
Lowering real interest and currency exchange rates can be beneficial in the short term. It reduces the cost of borrowing, boosts asset prices, and stimulates economic activity, making it popular among borrowers and investors.
However, the benefits come at a cost. Lenders suffer due to reduced real returns, and savers see the value of their savings erode. Moreover, devaluing the currency makes foreign goods more expensive and weakens the country's purchasing power globally. Foreign holders of domestic debt lose value when repaid in a depreciated currency, prompting them to sell off such assets, which further weakens the currency and financial markets.
Domestically, people often don’t perceive this decline in wealth because they measure asset values in their own devalued currency, creating an illusion of stability or even growth. This perception gap makes currency devaluation a “hidden” method of managing debt, one that is more politically palatable than overt measures like spending cuts or tax hikes.
Historical Precedent and Future Outlook
History shows that when countries accumulate unsustainable debt levels, especially under fiat currency systems, they tend to ease monetary policy aggressively. This leads to falling real interest rates and currency depreciation. A similar scenario unfolded during the stagflationary period between 1971 and 1981, which caused major shifts in wealth, markets, and political dynamics.
Given current debt and deficit levels—not just in the U.S., but across most developed nations—the potential for similarly dramatic changes exists today.
The Role of Hard Money
The way we perceive money has evolved significantly. Before 1971, when the U.S. dollar was still tied to gold, people understood that paper money could lose value. Today, under fiat currency systems, people typically view rising prices as inflation rather than recognizing the declining value of money itself.
Because gold-backed currencies historically maintained greater price stability than fiat currencies, some argue that viewing prices in gold provides a more accurate perspective. Central banks seem to agree, as many have increased their gold reserves—placing it second only to the U.S. dollar as a reserve asset—due to its reliability and lower confiscation risk compared to other assets.
Considering Gold as a Hedge
When debt and fiscal imbalances reach extreme levels, holding hard assets like gold becomes increasingly important. Recently, some cryptocurrencies have also been considered as alternatives to traditional forms of hard money.
While I’m not offering specific investment advice, it’s useful to consider the balance between gold and bonds in a portfolio. They tend to diversify each other well. Based on supply-demand dynamics, relative costs, and return expectations, a gold allocation of about 15% can serve as an effective hedge, improving the overall risk-return profile of a portfolio. Inflation-protected bonds offer similar benefits and should also be considered.
My goal here isn’t to tell you what to invest in or predict exact market outcomes. Rather, it’s to provide you with the tools and understanding needed to make informed decisions—what I call "teaching you how to fish rather than giving you the fish."
Congress has passed President Donald Trump's "big, beautiful bill," handing the administration a major legislative victory, but both sides of the aisle have been sending mixed messages about what the legislation will actually do. Republicans have been lauding the bill for its supposed assistance to the middle class, while Democrats say it is primed to help the rich while cutting benefits for the needy. With Republicans controlling both houses of Congress, it seemed mostly inevitable that the bill would eventually be passed.
What did the commentators say?
The bill's passage means that "seniors, students, taxpayers, children, parents, low-income Americans and just about everyone else will be affected," said CNN. While Republicans have been tweaking versions of the bill to send between the different chambers of Congress, the "general contours of the massive piece of legislation are known." This includes a $4.5 trillion extension of Trump's enormous first-term tax cuts that would leave the wealthiest households with $12,000 more yearly, according to the Congressional Budget Office, and offsetting of "revenue loss and additional spending with cuts to federal support for the social safety net that helps Americans afford food and health insurance."
Most notable are funding slashes to key programs for low-income Americans, including Medicaid, food stamps, and the Affordable Care Act, or Obamacare. The version of the bill as passed "cuts federal spending on Medicaid and Affordable Care Act marketplaces by about $1 trillion over a decade," which "could lead to nearly 12 million more people without insurance by 2034," said NPR, citing the CBO estimate. Beyond individuals themselves losing insurance, this would "harm the finances of hospitals, nursing homes and community health centers" and "may force them to reduce services and employees, as well as close facilities."
These Medicaid cuts would come via a proposed work requirement, which "would cut off coverage for millions of enrollees who do not meet new employment or reporting standards," said NPR. But most "working-age Medicaid enrollees who don't receive disability benefits already work or are looking for work," meaning the requirement would likely have "little impact on employment."
Republicans say "concerns are overblown and they are making both Medicaid and [food stamps] more sustainable by targeting waste, fraud and abuse in both programs," said ABC News. The bill additionally "includes a key campaign promise: no federal income taxes on tips and overtime." Trump also "keeps saying that Republicans' mega tax and spending cut legislation will eliminate taxes on federal Social Security benefits," said The Associated Press.
But this is false, as "it does not" eliminate Social Security taxes, said the AP. Trump's "'no tax on Social Security' claim exaggerates the benefits to seniors if either the House or Senate-passed proposals are signed into law." Instead of eliminating these taxes, the House and Senate "each passed their own versions of a temporary tax deduction for seniors aged 65 and over, which applies to all income, not just Social Security." But "not all Social Security beneficiaries will be able to claim the deduction."
There are also aspects of the bill that have been less reported on. This includes a phasing out of "tax credits for solar and wind projects — meaning that development will slow and consumers will face higher prices," said Axios. Funding for the Consumer Financial Protection Bureau has been "slashed by about half in the new bill," which "could lead to hundreds of job cuts and severely disarm a group that has returned billions to American consumers."
What next?
The bill passed the House 218-214 on Thursday, sending it to Trump's desk to be signed into law. Its passage is a "major victory for Trump and Republican leadership in Congress," said USA Today. Despite unified opposition to the bill, Democrats "see it as a ticket to winning back congressional majorities in 2026."
- The U.S. tax and spending bill passed on July 3 is expected to add more than $3 trillion to the country’s deficit over the next decade. If the current debt trajectory continues unabated, it could set off a slow motion debt spiral that could endanger the Federal Reserve’s independence.
The CBO based its estimate on the assumption that temporary increases in government spending and tax cuts will sunset at a projected date. But this new budget bill, which extended previous tax cuts and other measures, has shown that this sunset often never arrives.
Thus, the long-term projections in the U.S. Treasury’s annual financial report, which opens a new tab, may be more realistic since they assume the current rate of government spending will continue indefinitely. In the Treasury forecast, the U.S. debt-to-GDP ratio is projected to increase to over 200% in 2050 compared to the CBO’s estimate of around 145%.
Scarier still, the Treasury forecasts that the U.S. debt-to-GDP ratio will reach 535% by 2100 if current spending plans continue.
That hardly makes a difference compared to an expected debt increase totalling almost 10% of GDP.
Chart depicting U.S. debt-to-GDP projections
RISING RISK PREMIUMS
If today’s debt dynamics persist, the risk premiums in the U.S. Treasury market will almost certainly climb over the long run.
Economists Martin Ademmer and Jamie Rush, opens new tab have analysed the drivers of 10-year Treasury real yields since 1970. They concluded that investors typically demand more risk compensation as the U.S. deficit increases, especially when there is competition from an ample supply of safe assets globally. Thus, Treasury yields rise.
Their analysis concludes that these two factors together lifted the natural 10-year real yield for Treasuries by 1.3 percentage points between 2005 and 2023. If the deficit projections for the next decade are realized, this trend should continue.
Chart depicting change in 10-year U.S. Treasury risk premium since 2005
With all this in mind, it was notable that U.S. Treasury Secretary Scott Bessent said last week, opens a new tab that he would not boost long-term Treasury bond sales given today’s high interest rates. Since the pandemic, the average duration of U.S. government debt has declined significantly as the Treasury has favoured bills over longer-term instruments to keep interest expenses under control.
One reading of Bessent’s comments is that the Treasury is concerned about the country’s ability to continue servicing its long-term debts if it borrows at today’s elevated yields, a message that could push Treasuries’ risk premium even higher, making long-term borrowing even less tenable.
Chart depicting how U.S. Treasury duration has been falling since the pandemic
GREEK TRAGEDY
This reminds me of a similar episode in which a heavily indebted country faced a sudden spike in its already large deficit. As investors lost trust in the country’s ability to pay back its debt, long-term yields rose, which in turn forced the government to issue debt at shorter and shorter maturities. This signalled to the market that the government would struggle to pay the existing debt, and this pushed long-term government bond yields even higher. The country’s debt entered a doom loop.
The country in question: Greece after the 2009 financial crisis.
Chart depicting Greece's inadvertent shortening of duration
To be clear, I do not expect the U.S. to experience a similar implosion. There are crucial differences between the U.S. and Greece that should prevent this, not least the ability of the U.S. to devalue the dollar and inflate away some of its debt. Greece, as a eurozone member, had no such flexibility.
But the new U.S. budget increases the possibility that the U.S. could face a similar debt drama, only in slow motion. If long-term Treasury yields remain higher for longer, the Treasury is apt to continue shortening the duration of its debt. This, in turn, could create a vicious cycle by making government interest expenses more volatile, further imperiling U.S. fiscal health, and making longer-term debt even riskier.
OFF RAMPS
There appear to be three main off-ramps for the U.S.
One: politicians could become fiscally prudent and significantly reduce the deficit to a sustainable level. This seems unlikely given both parties’ recent track records.
Two: The Treasury could impose capital controls to artificially increase demand for Treasuries. As I have written previously, this move would likely spell the end of the dollar as the main global reserve currency.
Three: the Fed could create artificial demand for long-term Treasuries by scooping up bonds itself – that is, restarting quantitative easing – to keep yields low. The danger with this form of QE, however, is that it represents fiscal dominance, where the central bank loses control over monetary policy because of imprudent government actions.
How such a development would play out is impossible to predict, especially when it involves a global superpower, but it’s fair to assume the Fed won’t want to find out.
(The views expressed here are those of Joachim Klement, an investment strategist at Panmure Liberum, the UK's largest independent investment bank.)
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Republicans have passed President Donald Trump’s massive 887-page “One Big Beautiful Bill,” which Trump is set to sign into law on Friday, July 4, 2025. The bill delivers tax cuts, slashes programs for low-income Americans, boosts funding for mass deportation, and penalizes the solar and wind industries, while adding at least $3 trillion to the national debt, according to independent analysts. Here’s a breakdown of its key impacts.
**Taxes: Status Quo Preserved, New Cuts Added**
The bill locks in the 2017 Trump tax cuts, preventing tax increases set to hit in 2025. This maintains current income tax rates but isn’t a new cut for most. New “populist” tax breaks include deductions of up to $25,000 for tip income, $12,500 for overtime, $6,000 for seniors, and interest on loans for U.S.-made cars. It also introduces “Trump accounts,” government-funded $1,000 savings accounts for children.
Wealthy Americans and businesses score big. The bill makes permanent tax breaks for pass-through businesses, raises the estate tax exemption to $15 million, and increases the state and local tax (SALT) deduction cap from $10,000 to $40,000, benefiting high-tax blue state residents. Corporate tax breaks, including bonus depreciation and R&D expensing, are also made permanent. Analysts say these changes disproportionately favor the wealthy, making the bill regressive.
**Safety Net: Deep Cuts to Medicaid, SNAP, and Student Loans**
Despite Trump’s promises, the bill cuts Medicaid by up to 18% through work requirements and other restrictions, potentially stripping health insurance from 12 million people, per the Congressional Budget Office. It also weakens Affordable Care Act marketplaces. SNAP (food stamps) faces up to 20% cuts via work requirements and higher state cost-sharing, with a quirky provision incentivizing payment errors to win over Sen. Lisa Murkowski (R-AK). Student loan programs are being overhauled, ending many repayment plans, increasing borrower costs, and limiting future loans.
**Clean Energy: Solar and Wind Targeted**
The bill reverses Biden’s clean energy incentives from the Inflation Reduction Act, terminating tax credits for electric vehicles and energy efficiency this year. Clean electricity tax credits are phased out, with solar and wind facing faster cuts. It also mandates reduced use of Chinese components, a challenge for the industry. Earlier drafts were even harsher but were softened to secure Senate passage.
**New Spending: Border Wall, Deportation, and Military**
The bill allocates $175 billion for immigration enforcement, including $50 billion for the border wall and CBP facilities, $45 billion for detention capacity, and $30 billion for deportation operations, advancing Trump’s mass deportation agenda. The military gets $150 billion for a “Golden Dome” missile defense shield, shipbuilding, and munitions.
**Debt: A $3 Trillion Surge**
The bill’s tax cuts far outstrip its spending reductions, adding at least $3 trillion to the national debt. Rising interest payments could strain the economy long-term, but Republicans are banking on tax cuts boosting growth and minimizing political fallout, as the cuts primarily hit low-income and Democratic-leaning groups.
This bill marks a major legislative win for Trump, prioritizing tax breaks and conservative priorities while slashing liberal-coded programs, but its massive debt increase and targeted cuts may spark future economic and political challenges.
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