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Trump's tax reform: A gigantic mountain of debt for the USA!
US President Trump has passed the controversial tax reform. It could massively increase national debt and influence economic growth. Details, forecasts and reactions can be found here.
Trump's tax reform: A gigantic mountain of debt for the USA!
US President Donald Trump has successfully pushed through the controversial “Big Beautiful Bill”, thereby marking the passage of the new tax reform in the USA. This reform, passed after intense debate in the House of Representatives, is expected to lead to a significant increase in America's national debt. This currently amounts to around $36.2 trillion, which corresponds to around 121% of the gross domestic product (GDP). The government estimates the law could add an additional $3.3 trillion in debt by 2034, bringing the total debt burden to nearly $4 trillion. Trump plans to sign the 900-page law on Friday.
Uncertainty in the financial markets is increasing as high national debts become a growing concern. Analysts agree that the government's growth forecasts, which expect rates between 4.6 and 4.9 percent, are over-optimistic. Independent institutes such as Penn University, Yale and the Congressional Budget Office forecast significantly lower growth rates of between 0.4 and 1.1 percent. The consensus among experts also warns that the economic upswing can be expected primarily in the first years of the Trump presidency before it levels off or even reverses.
Impact on the national economy
As the world's largest economy, the USA plays a central role in global growth. German exports to the USA recently amounted to 161 billion euros, which underlines the importance of this market. While Trump is hoping for a strong growth spurt, critics see rising national debt and weak economic growth as possible risks for the dollar.
Another critical point is the debt ceiling, which must be raised to ensure the US's solvency. In the past there have been repeated blockages by Republicans in raising this cap. The current tax reform proposes a $5 trillion increase, which could face resistance.
Criticism of the tax reform
The tax reform also includes cuts to Medicaid by $700 billion and food stamps by half. Voter polls show that 55% of Americans oppose the law, while only 29% support it. However, many people are not aware of the details of the law. A planned tax break for electric cars is set to expire by September 30, 2023, and a new 3.5% tax will be introduced on remittances from migrants, who send around $80 billion a year to their home countries. Critics warn that this tax could lead to an increase in illegal migration.
In addition, the regulation of artificial intelligence was removed from the tax reform, while at the same time billions are to be allocated to the development of this technology. Internationally, Moody's downgrade of the US credit rating from Aaa to Aa1 could affect future investments and increase pressure on the Federal Reserve to cut interest rates.
With the package announcement, Trump is relying on tax relief for middle and high incomes and companies. However, it remains to be seen how the reform will affect the actual overall economic situation - a fact that has alarmed both national and international observers.
For more details on tax reform, see articles by Süddeutsche.de and FAZ.net.