On July 3, the United States House of Representatives passed President Donald Trump’s signature tax cut and spending package, which he has called the “One Big Beautiful Bill“.
The bill combines tax reductions, spending hikes on defence and border security, and cuts to social safety nets.
Democratic Minority Leader Hakeem Jeffries warned that the bill “hurts everyday Americans and rewards billionaires with massive tax breaks”.
Trump’s erstwhile ally, billionaire Elon Musk, publicly opposed the bill, arguing it would bloat expenditure and the country’s already unmatched debt.
Trump is expected to sign the bill into law on Friday, July 4 – the US’s independence day – at 4pm ET.
Here’s what’s next – and whom the bill will affect:
How have taxes been lowered?
The main goal of the bill was to extend Trump’s first-term tax cuts.
In 2017, Trump signed the Tax Cuts and Jobs Act, which lowered taxes and increased the standard deduction for all taxpayers, primarily benefitting higher-income earners.
More than a third of the total cuts went to households with an income of $460,000 or more.
The top 1 percent (roughly 2.4 million people) received average tax cuts of about $61,090 by 2025 – higher than any other income group. By contrast, the middle 60 percent of earners (78 million people) saw cuts in the range of $380 to $1,800.
Those tax breaks were set to expire this year, but the new bill has made them permanent. It also adds some more cuts Trump promised during his latest campaign.
For instance, there is a change to the US tax code called the State and Local Taxes deduction.
This will let taxpayers deduct certain local taxes (like property taxes) from their federal tax return.
Currently, people can only deduct up to $10,000 of these taxes. The new bill would raise that cap from $10,000 to $40,000 for five years.
Taxpayers will also be allowed to deduct income earned from tips and overtime, until 2028, as well as interest paid on loans for buying cars made in the US from this year until 2028.
Elsewhere, the estate tax exemption will rise to $15m for individuals and $30m for married couples.
In all, the legislation contains about $4.5 trillion in tax cuts.
How big are social welfare cuts?
To help offset the cost of the tax cuts, Republicans plan to scale back Medicaid and food assistance programmes for low-income families.
Their stated goal was to focus these programmes on certain groups – primarily pregnant women, people with disabilities and children – while also reducing what they deem to be waste, including by limiting access to immigrants.
Currently, more than 71 million people depend on Medicaid, the government health insurance program.
According to the Congressional Budget Office (CBO), the bill would leave an additional 17 million Americans without health cover in the next decade.
While Medicaid helps Americans suffering from poor health, the Supplemental Nutrition Assistance Program (SNAP) helps poor people afford groceries.
About 40 million Americans currently receive benefits through SNAP, also known as food stamps.
The CBO calculates that 4.7 million SNAP participants will lose out over the 2025-2034 period, due to program reductions.
Changes to Medicaid and SNAP could become permanent provisions, with no sunset clauses attached to them.
A recent White House memo pointed to more than $1 trillion in welfare cuts from the new bill – the largest spending reductions to the US safety net in modern history.
Will there be new money for national security?
The bill sets aside about $350bn, to be spread out over several years, for Trump’s border and national security plans. This includes:
- $46bn for the US-Mexico border wall
- $45bn to fund 100,000 beds in migrant detention centres
- Billions more to hire an extra 10,000 Immigration and Customs Enforcement (ICE) agents by 2029, as part of Trump’s plan to carry out the largest mass deportation effort in US history.
Will clean energy be affected?
Republicans have rolled back tax incentives that support clean energy projects powered by renewables like solar and wind, instead giving tax breaks to coal and oil companies.
These “green” tax breaks were a part of former President Joe Biden’s landmark Inflation Reduction Act, which aimed to tackle climate change and reduce healthcare costs.
A tax break for people who buy new or used electric vehicles will expire on September 30 this year, instead of at the end of 2032 under current law.
How will the bill affect the US debt profile?
The legislation would raise the debt ceiling by $5 trillion, from $36.2 trillion currently (which amounts to 122 percent of gross domestic product or GDP), going beyond the $4 trillion outlined in the version passed by the House in May.
Washington cannot borrow more than its stated debt ceiling. But since 1960, Congress has raised, suspended or changed the terms of the debt ceiling 78 times, facilitating more leverage and undermining the US’s long-term fiscal stability.
In his first term, Trump oversaw a roughly $8 trillion increase in the federal debt, which surged due to 2017 tax cuts and emergency spending, approved by Congress, during the COVID-19 pandemic.
Debt as a share of GDP was already higher last year than it was anytime outside of World War II, the aftermath of the 2008 financial crisis or the COVID-19 pandemic. Deficit concerns contributed to Moody’s downgrading of the US credit score in May.
For its part, the White House claims the new tax bill will reduce projected deficits by more than $1.4 trillion over the next decade, in part by spurring additional growth. But economists on both sides of the aisle have strongly disputed that.
Indeed, according to the non-partisan Committee for a Responsible Federal Budget, interest payments on national debt will rise to $2 trillion per year by 2034 owing to the legislation, crowding out spending on other goods and services.
How did the House of Representatives vote on the bill?
The lower house of the US Congress voted by a margin of 218 to 214 in favour of the bill on Thursday.
All 212 Democratic members of the House opposed the bill. They were joined by Representatives Thomas Massie of Kentucky and Brian Fitzpatrick of Pennsylvania, who broke from the Republican majority.
On July 1, the Senate narrowly passed the bill by a 51–50 vote, with the deciding vote cast by Vice President JD Vance.
Who will benefit the most?
According to Yale University’s Budget Lab, wealthier taxpayers are likely to gain more from this bill than lower-income Americans.
They estimate that people in the lowest income bracket will see their incomes drop by 2.5 percent, mainly because of cuts to SNAP and Medicaid, while the highest earners will see their incomes rise by 2.2 percent.
