Passage of U.S. Tax-cut Bill: Concerns Grow over Fiscal Deterioration, Divisions in Society

Editorial

15:16 JST, July 8, 2025

The fiscal condition continues to deteriorate, and divisions in society are further deepening. This major tax-cut policy will inevitably cause concern about the future of the United States.

The tax-cut and spending bill that incorporates major pledges of the second administration of U.S. President Donald Trump has been passed into law. The legislation will be one of its signature policies, which has been touted by Trump as “one big beautiful bill.”

A core feature of the law is that it makes permanent tax cuts introduced during Trump’s first term, including a reduction in the personal income tax rate and corporate taxes. Measures aimed at his supporters, such as an end to taxes on tips for restaurant employees and other workers, will also be introduced.

The tax-cut package is expected to stimulate the economy to some degree.

At the signing ceremony, Trump said, “Our country is going to be a rocket ship, economically.” Trump may be trying to set this up as a major accomplishment before the midterm elections for Congress in autumn next year.

The problem is that the policy shows a disregard for fiscal consolidation. The U.S. fiscal condition continues to deteriorate, with government debt now exceeding $36 trillion. According to current estimates, the budget deficit will balloon by as much as $3.4 trillion (about ¥490 trillion) over the next 10 years by fiscal 2034.

Under the international financial order, which is centered on the dollar as the key currency, countries around the world use the currency for trade settlement and also hold it as an asset.

If fiscal discipline becomes slack and this triggers a loss of confidence in U.S. Treasury bonds, or a weakening of the dollar’s position as the key currency, it will be a blow to the international financial system. The impact on other countries, including Japan, which holds the largest amount of U.S. Treasuries, would be enormous.

Trump has insisted that he will use the tax revenue garnered from higher tariffs to make up for the tax cuts. These high tariffs are unacceptable as they would destroy the free trade system and plunge the world into chaos.

As a whole, the new law will benefit the wealthy and hurt the poor. It will tighten eligibility for public medical insurance benefits for low-income earners and curb expenditures. It is estimated that the move will increase the number of uninsured people by more than 10 million.

The United States is said to be one of the countries with the highest levels of inequality in the world. There is concern that the new law will further worsen divisions in society.

Meanwhile, U.S. businessman Elon Musk, who opposes the deterioration of the fiscal condition, announced the forming of a new party, the “America Party.” There is no end to criticism of the new law within the country. It may cause further political instability and chaos.

Trump has also significantly unwound support for decarbonization, including backing for solar and wind power generation and electric vehicles. The United States will inevitably fall behind China, which is already highly competitive in these areas. Japanese automakers will be forced to rethink their EV strategies.

Trump has said, “We will Make America Great Again.” It can hardly be said that the new law will lead to the future of the United States envisioned by Trump.

(From The Yomiuri Shimbun, July 8, 2025)