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- Spit on the ceiling: how Trump's "big and wonderful" budget will change the US economy
Spit on the ceiling: how Trump's "big and wonderful" budget will change the US economy
The American treasury will sink after the entry into force of the "great wonderful bill" on the budget, developed by US President Donald Trump and his team, experts interviewed by Izvestia are confident. The document will be adopted on July 4, and the day before it was barely approved in Congress after an eight-hour discussion. The new budget is fiercely criticized by billionaire Elon Musk, promising to create a third political party in the United States after its adoption. The bill assumes a significant increase in defense spending and tax cuts, while not providing for compensatory income. As a result, the debt ceiling will have to be raised by $5 trillion. The only possible source of additional revenue is trade duties.
Trump's budget bill — what is its essence
On July 3, the House of Representatives of the US Congress passed a "single, big, beautiful" bill on taxes and government spending, as Donald Trump called it. 218 congressmen supported the initiative, 214 voted against it, and it was discussed for about eight hours. The American leader called it the best birthday gift of the country — he intends to sign the document on July 4.
However, the bill has been criticized several times, primarily by entrepreneur Elon Musk. The businessman called the document huge and outrageous. According to him, this is a "disgusting outrage." And Democrats described it as a "big ugly robbery" of the middle class in favor of billionaires.
The American treasury will indeed significantly shrink after the law comes into force, experts interviewed by Izvestia believe. The adoption of the bill does not solve the problem of returning the budget deficit to a more stable trajectory, but rather strengthens it, explained Olga Belenkaya, head of the Macroeconomic Analysis Department at Finam.
A separate budget line is devoted to military support and border protection — it is planned to allocate about $ 350 billion for this. At the same time, $46.5 billion will be spent on the construction of a wall on the border with Mexico and $25 billion on the creation of the Golden Dome air defense system.
In addition, according to the bill, large businesses receive significant benefits, including investment deductions, and small and medium—sized businesses receive additional benefits. Companies will pay corporate tax at 21% instead of 35%. Although the rate cut to 15%, which Trump promised earlier, did not happen. Tax percentages for citizens will also remain unchanged — the maximum level will still be 37%. All this will significantly reduce budget revenues.
Representatives of the Republican Party propose to finance the relief, while reducing budget expenditures on other items. Their plan includes reducing health insurance and food aid programs, as well as canceling tax incentives for solar and wind energy projects, said Alexander Abramov, head of the Laboratory for Analysis of Institutions and Financial Markets at the RANEPA Institute for Applied Economic Research.
This was one of the reasons for criticism from Elon Musk: the document is harmful to Tesla, as it reduces support for green energy, the development of electric cars and technological innovations. According to the billionaire, such changes can slow down the transition to a sustainable economy and undermine the US position in high-tech industries.
What risks does Trump's new bill pose to the US economy?
According to Trump's supporters, reducing inefficient spending and tax cuts stimulate industry by increasing budget revenues. In addition, the reduction of social assistance will force the poor to look for work more actively. Nevertheless, such measures are likely to lead to a decrease in living standards, especially for the least well-off, Alexander Abramov is sure.
Reducing social programs can also reduce consumer demand among vulnerable groups of the population, says Svetlana Frumina, Acting Head of the Department of Global Financial Markets and Fintech at Plekhanov Russian University of Economics. She added: Taken together, the measures generate an economic boost, but it is accompanied by a decrease in the stability of the budget system and an increase in structural inequality.
In addition, the project lacks incentives for long-term economic growth, so it is probably focused on a short-term effect with the need to find sources of economic growth in the future, Svetlana Frumina emphasized.
At the same time, Trump's bill does not involve any compensating sources of income - this makes it fiscally vulnerable, added Sergey Potapov, senior analyst at BCS World of Investments. As independent expert Andrei Barkhota explained, the new American administration cannot afford to tighten its belts now, as this can quickly call into question the political future of the president and his team.
The draft reflects Trump's political priorities of strengthening defense, lowering taxes, and protecting domestic industries, but without a balanced budget policy, these steps can bring short—term benefits and create long-term risks. They manifest themselves in the fact that the rapidly increasing public debt and budget deficit limit the country's economic flexibility.
Despite the redistribution of funds, the US budget deficit will grow by $3.3 trillion by 2034. Such a burden weakens financial stability and limits the space for anti-crisis measures in the future, Sergey Potapov believes. According to Elon Musk, now we need a new financial plan that does not include such a rapid increase in government debt — the project involves raising the allowable ceiling by $ 5 trillion. Despite the fact that recently the debt level has already exceeded the $37 trillion mark.
Elon Musk's Political Party
Amid the controversy surrounding Trump's budget bill, Elon Musk even warned that he might create his own opposition party in the future. According to him, the time has come for a new faction that will "really take care of people."
So far, the main public critic of Trump's budget project is unlikely to represent a self-sufficient political force, given his own ambiguous reputation, says Alexei Fenenko, professor at the Faculty of World Politics at Moscow State University and an expert at the Russian International Affairs Council.
— Trump is absolutely right: Elon Musk would never have known such space successes if the American state had not helped him. It created a "screen" in the form of Musk's private company, gave him technologies, loans, and specialists that allowed him to achieve limited success — to recreate manned space flights. Musk considered that it was his merit, not the American state's," he said.
According to the expert, the Mask has now been reminded who is who. At the same time, the businessman's plan to create a third American party is unlikely to succeed. It is unlikely that she will be able to win the federal elections due to both organizational difficulties and the reluctance of politicians and their voters to lose in the face of a cohesive opposition, explained HSE expert Egor Toropov.
According to him, there is another option represented by the Libertarian party. She regularly receives at least 1% of the vote in some states. Its chairman has already approached Musk with a proposal for cooperation: thus, the businessman will receive not only a ready-made and relatively well-known party and organizational structure, but also the like-minded people closest to him, Egor Toropov added.
What will happen to the US national debt
The US economy now has two problems — the growing national debt and deindustrialization, Alexey Fenenko explained.
— Today's American economy is 80% a service economy. But since it does not produce a real product, it becomes more difficult to collect taxes. There is not much industry left, primarily military, aviation, and the remnants of the automotive industry. That's why the American government is figuring out how to get out of this situation," the expert explained.
In order to somehow resolve economic problems, Trump relies on an aggressive trade policy - he proposes to impose duties on almost all countries with which the United States does business, recalled Sergey Potapov from BCS World Investments. According to the American leader, this should reduce dependence on imports, increase budget revenues and stimulate the development of domestic production. Previously announced tariffs have now been frozen for most countries, and they are expected to enter into force on July 9. According to the American leader, he has already started sending letters to each country with messages about what level of rates will be set for it.
— Additionally, Trump is promoting the idea of returning American companies to the United States in order to create jobs, develop industry and stimulate GDP growth. In theory, such a strategy can boost business activity and expand the tax base. However, in the short term, this does not solve the problem of shortage," the expert added.
If the trajectory continues, by the end of 2025, the national debt of the United States will exceed $38 trillion, which corresponds to more than 126% of GDP. This will create additional pressure on the budget and increase debt service costs.
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