House Republicans recently unveiled a legislative package called The One, Big, Beautiful Bill, a phrase that President Donald Trump has used to describe what could end up being a landmark piece of legislation during his second term. Republicans will attempt to pass large parts of Trump's legislative agenda through one bill that proposes sweeping tax cuts and an increase in spending on border security, among many other initiatives.
Along with the bill, House Republicans are also looking to implement initiatives to fund the ambitious slate. Perhaps most prominently, the bill proposes over $5 trillion of tax cuts. While these tax cuts could certainly put more money in the pockets of many Americans and businesses, they may also come with unintended consequences.
What's in The One, Big, Beautiful Bill?
The legislative package first and foremost will look to make the tax cuts in Trump's Tax Cuts and Job Act of 2017 permanent. This bill, one of the blockbusters passed in Trump's first term, lowered individual tax brackets anywhere from between 1% to 4%. It significantly lowered and set one single corporate tax rate at 21%, implemented a larger standard deduction, and phased in the child tax credit at a lower income bar, among many other tax cuts.
Official White House Photo by Tia Dufour.
The new bill also incorporates new tax cuts including temporarily increasing the child tax credit by $500 to $2,500, temporarily making earnings from tips tax deductible, eliminating taxes on overtime wages, and increasing the small business pass-through deduction from 20% to 23%, just to name some of the additional cuts.
While taxes are front and center, the bill would also touch on other areas. It would phase out various tax credits on electric vehicles, which had been a big part of former President Joe Biden's Inflation Reduction Act. It would also increase funding for border security, including the construction of a border wall in between the U.S. and Mexico, the hiring of many more Border Patrol and Immigration and Customs Enforcement (ICE) agents, and the deportation and detention of illegal immigrants.
Republicans are also simultaneously attempting to find ways to fund all of these initiatives. This is a major point of contention because Republicans have tasked The Energy and Commerce Committee, which oversees Medicaid, the federal health insurance program for lower-income Americans, with finding $880 billion of savings over the next decade. Many including the nonpartisan Congressional Budget Office have found that this would not be possible without cuts to Medicaid.
Bond vigilantes likely to be on high alert
The nonpartisan, nonprofit Committee for a Responsible Federal Budget in its preliminary estimates believes The One, Big, Beautiful Bill could add at least $5 trillion to primary deficits through 2034. Primary deficits refers to the difference between revenue and expenses, excluding interest payments on the current debt. The Committee for a Responsible Federal Budget also said that if the bill is added to other reconciliations bills released thus far, the country's debt, which already exceeds $36 trillion, could increase anywhere from $6 trillion to $7 trillion. Debt-to-gross domestic product would also increase from 117% to 134% by 2034, the Committee projects.
Many experts and investors have already called the country's financial situation unsustainable. The U.S. has seen its debt downgraded twice since the Great Recession and it may not be long before we see a third downgrade from Moody's. Investors funding U.S. debt by purchasing U.S. Treasuries have begun to take notice, and investors have seen yields rise unexpectedly at various times throughout the year. The bond vigilantes, investors of U.S. Treasuries known for demanding higher yield to account for the riskier financial situation of the U.S. government, are undeniably on high alert.
The Trump administration has not been able to escape rising yields. When Trump implemented high, elevated tariff rates on countries across the board, many believe it was rising Treasury yields that ultimately led the administration to blink and implement the first 90-day pause. Even after the recent pause with China and the seeming willingness to negotiate trade deals, the yield on the 10-year Treasury note still hovered around 4.5%, as of May 15. This is happening, despite economists projecting a slowdown in GDP growth this year and in 2026, and as traders are pricing in four interest rate cuts by the Federal Reserve between now and the end of 2026.
The Tax Foundation found that the proposal by House Republicans would increase long-running GDP by 0.6%, but lower revenue from taxes by $4 trillion between now and 2034. The House Budget Resolution is looking for $1.7 trillion in spending cuts to help offset some of this, but current proposals like potential cuts to Medicaid could face opposition. Trump had also previously touted tariffs as a way to fund tax cuts but with the administration bringing tariff rates down, it's unclear how much revenue the administration will ultimately be able to count on from this source.
Higher long-term yields present an issue for the Trump administration as U.S. debt matures and must be refinanced. U.S. presidents throughout the 21st century have heavily leaned on debt to fund their initiatives in annual budgets, but this is starting to become a real issue. It could result in soaring Treasury yields, which may have a cascading effect on the stock market and global financial system.
