Trump’s Tax Reforms Still Face Hurdles in Congress (AI Translation)

【周刊提前读】特朗普税改闯关国会 财政赤字仍将恶化

After a temporary pause in the U.S.-China tariff war, President Donald Trump shifted his attention to a core campaign promise: a sweeping tax reform branded as the “Make America Great Again 2.0” or “Beautiful Act.” This legislative package combines substantial tax cuts, spending reductions, and an increase in the debt ceiling. Its success is pivotal for Trump’s potential second term and the Republican Party’s prospects in the 2026 midterms, as its passage or failure will significantly affect every American’s finances. However, its progress stalled initially due to resistance from Republican “fiscal hawks,” requiring Trump’s direct intervention to move it forward [para. 1][para. 2].

The bill is central to Trump’s economic agenda, which is based on trade policy, tax cuts, and deregulation. However, Trump’s intervention in budget negotiations challenges traditional U.S. governance, where Congress has funding authority. Since initiating global tariffs on April 2, 2025, U.S. tariff rates have climbed above 13%, over five times the 2.4% rate seen in 2024 and the highest since the 1940s [para. 3][para. 4]. Economists warn these tariffs have spurred inflation, eroded real wages, and heightened policy uncertainty. As a result, U.S. economic growth is projected to slow significantly, from over 2.5% in recent years to well below that, endangering Republican prospects for the 2026 midterms [para. 4][para. 5].

The House version of the “Beautiful Act” proposes over $5 trillion in tax cuts across ten years, offset by $1.6 trillion in spending reductions, primarily targeting Medicaid, student loans, and food assistance programs. Factoring in the elimination of Biden-era green credits, net federal revenue would fall by roughly $4.6 trillion, increasing the federal deficit by $3.2 trillion during the decade [para. 11][para. 13][para. 14]. Most individual tax cuts and credits expire in 2028, ensuring short-term stimulus while pushing major cost savings and spending cuts until after 2029. The extension of 2017 tax cuts alone could cost $4 trillion over a decade [para. 16]. Corporate tax cuts are smaller and also mostly temporary, and clean energy credits are set to be phased out [para. 18].

Notably, the bill’s design front-loads economic stimulus and delays politically risky cost-cutting until after the next presidential term. Experts argue this could boost economic growth through 2026, but that the benefit will be offset by negative impacts from both tariffs and rising deficits [para. 7][para. 8]. The annual U.S. fiscal deficit could exceed 7% of GDP, a level only previously seen during wars or crises [para. 8].

Despite claims of helping working-class Americans (with exemptions on tips, overtime, and other targeted tax relief), analyses show that nearly two-thirds of the tax benefits would accrue to the top 20% of earners, with the top 1% capturing almost a quarter of the benefits. The lowest 20% of households will see gains of just $90 annually compared to over $45,000 for the richest 1% [para. 40][para. 41][para. 42]. In parallel, spending cuts target Medicaid, affecting vulnerable populations and causing intraparty tension, especially among Republicans from districts with high Medicaid enrollment [para. 48][para. 49].

Legislative progress has been rocky. Deep rifts between fiscal hawks and moderates brought the bill to the brink of failure in the House before Trump’s personal lobbying secured its committee passage by a narrow margin [para. 36][para. 37][para. 38].

From a market perspective, passage of the bill is expected to lead to a rise in long-term Treasury yields, further U.S. debt growth, and more credit downgrades as deficits and interest costs rise. All major international credit agencies have now stripped the U.S. of its top sovereign rating, citing persistent fiscal irresponsibility. Federal debt is projected to surge to 134% of GDP by 2035, while interest payments have already exceeded $1 trillion annually [para. 65][para. 67][para. 68][para. 70][para. 73].

In summary, the “Beautiful Act” promises short-term economic stimulus and tax relief favoring higher-income groups, but at the expense of swelling deficits, increased inequality, and strained safety nets—setting up political and fiscal risks over the next decade [para. 83].