President Trump's proposed bill, known as the "big beautiful bill," aims to deliver significant tax cuts, potentially the largest in US history. The bill's impact could surpass that of tariffs, with Trump warning that Democratic opposition could lead to a 58% tax increase if the bill fails.
*Key Components of the Bill:*
- *Extending 2017 Tax Cuts and Jobs Act (TCJA)*: Permanently extending the TCJA provisions, which would decrease federal tax revenue by $4.5 trillion from 2025 to 2034.
- *New Tax Exemptions*: Exempting Social Security benefits, tips, and overtime pay from federal taxes, potentially costing $2.2 trillion over 10 years.
- *Tariffs*: Implementing new tariffs to offset tax cuts, which could invite foreign retaliation and offset the economic benefits of tax cuts.
*Potential Impact:*
- *Economic Growth*: Extending TCJA provisions could boost long-run GDP by 1.1% and increase long-run wages by 0.5%.
- *Revenue Loss*: The tax cuts could increase the budget deficit and push up interest costs by an estimated $941 billion.
- *Social Security and Medicare*: Exempting Social Security benefits from taxes could accelerate the Social Security trust fund's insolvency by three years and lead to a 33% across-the-board cut to Social Security benefits in 2031 .
*Criticism and Concerns:*
- *Regressive Tax Cuts*: The tax exemptions could disproportionately benefit high-income households, with over half of the tax benefit going to the top 20% of households.
- *Fiscal Responsibility*: The tax cuts could worsen the revenue shortfall of Social Security and Medicare, potentially leading to fiscal challenges .
