July 4, U.S. Independence Day Eve, a Major Legislative Breakthrough for the Trump Administration.
On July 1, as Vice President James David Vance cast the decisive vote in the U.S. Senate, the Senate passed President Donald Trump’s core legislative agenda for his second term, the “Beautiful Bill,” with a narrow 51-to-50 vote. A little over a month earlier, on May 22, after much internal debate within the Republican Party, this bill barely passed the first round of voting in the House of Representatives with a 215-to-214 vote.
This extensive 900-page tax and spending bill is centered on Trump’s agenda of tax cuts, energy deregulation, and tightening immigration, aligned with his Make America Great Again (MAGA) platform. It also broadly covers social security, defense, gun control, social diversity, and nearly every policy area in the U.S. Upon Senate approval, adjustments were made to the details, such as spending scale, timelines, and beneficiary standards, based on the House version.
As Independence Day approached, the House was tasked with reconsidering the Senate version, aiming to complete all legislative procedures by the July 4 deadline set by Trump for the bill to become law with his signature.
Although both the House and Senate are currently held by Republicans with a narrow majority, internal GOP criticisms of Trump’s legislative efforts have delayed the process.
When the bill returned to the House, speculation that disputes over health care cuts might create a significant impasse proved unfounded. On the morning of July 3, while the House was still debating the bill, the Trump administration prematurely issued a victory declaration, announcing a signing ceremony for the Beautiful Bill to be held at the White House on July 4. Later that afternoon, the House passed the final version of the bill with a 218-to-214 vote. In May, only Kentucky Congressman Thomas Massie and Ohio Congressman Warren Davidson had voted against it. This time, Davidson announced that he had reversed his stance, while Massie and Representative Brian Fitzpatrick of Pennsylvania, seeking moderate voters in the upcoming midterms, cast their opposition.
On the 249th anniversary of America’s founding, at approximately 5 p.m. Eastern Time on July 4, Trump signed the Beautiful Bill into law in front of global media.
Senate Voting and Controversy
Before the Senate vote, North Carolina Republican Senator Thomas Tillis, under repeated pressure from Trump, first publicly stated that he would vote against the bill, then announced his decision to not seek re-election in 2026. Tillis’s willingness to forgo re-election to oppose the bill reflected the significant controversy surrounding this legislation. Furthermore, the Trump administration’s refusal to compromise further on the bill has expanded the executive branch’s power to unprecedented levels in U.S. constitutional history.
Opposition to the Beautiful Bill has been fierce, with voices like tech mogul Elon Musk, who publicly broke with Trump in early June, leading the charge. Musk, who claims to have saved $2 trillion in U.S. spending to reshape the nation’s fiscal discipline, expressed his dissatisfaction with the bill’s expansion of the deficit. By the end of May, after resigning from his role as head of the “Government Efficiency Department,” Musk began openly attacking the Beautiful Bill. Less than a month later, at the end of June, Musk condemned the bill as “extremely foolish and destructive,” arguing that it destroys “sunrise industries,” causes the loss of millions of American jobs, and will lead to “huge strategic damage” and “enslave the country with debt.” During the 2024 elections, Musk, leveraging his wealth to support Trump’s campaign, even threatened to ensure that every lawmaker supporting this bill would lose their next election. Trump quickly retaliated, claiming that Musk, as the CEO of Tesla, has likely received more government subsidies than anyone in history. Trump, whose election campaign focuses on expelling illegal immigrants, even stated he “would consider” expelling Musk from the U.S.
Given the prolonged negotiation periods for past U.S. fiscal bills, initial expectations for the Beautiful Bill’s success before July 4 were low. Many believed it was more likely to pass before the “X-date” related to the debt ceiling, which, according to U.S. Treasury Secretary Scott Bessent, is expected to occur in August. The acceleration of the legislative process was driven by Trump’s soft and hard tactics to sway dissenting Republican senators—holding meetings at the White House, playing golf together during the day, bombarding them with phone calls at night, and extensive negotiation by Republican leaders across both chambers.
South Dakota Senator John Thune, who became the Senate Majority Leader in January, was tasked with shepherding the Beautiful Bill. Thune, a more reserved figure compared to House Speaker Mike Johnson, stated after the Senate approved the bill, “We’ve finally gotten the job done.”
Upon hearing the news that the Beautiful Bill had passed in the Senate, Trump, while in Florida attending an event about the detention of illegal immigrants, remarked that the good news “sounded like music” to his ears.
The Path Ahead: Electoral Uncertainty and Controversy
The enormous bill, which bears Trump’s personal imprint, leaves open the question of whether it will benefit Republican candidates in the 2026 midterms due to tax cuts or hurt them due to reduced social security spending. According to various polls conducted in June by Pew, Quinnipiac, The Washington Post, and Fox News, 49%, 53%, 42%, and 59% of Americans oppose the bill, with support ranging from 23% to 38%.
Senate Votes and the Last-Minute Tension
Currently, Republicans hold 53 seats, and Democrats hold 47 in the Senate. This meant that if four Republican senators defected and joined the Democrats in opposing the Beautiful Bill, it would have been doomed. In the final vote, three Republican senators joined the Democrats in opposition: Thomas Tillis of North Carolina, Susan Collins of Maine, and Rand Paul of Kentucky.
On the morning of July 1, after all 100 senators voted, the vote ended in a tie with 50 votes for and 50 votes against. Vice President James Vance, in his role as President of the Senate, cast the deciding vote, allowing the bill to narrowly pass in the first round of voting. To prepare for this potential outcome, Vance had been on standby at the Senate early that morning.
In the days before the Senate vote, internal Republican disagreements about the depth of spending cuts, healthcare, and social welfare expenditure had led to concerns that the bill might not make it to Trump for signing before July 4. However, after the Senate passed a crucial procedural vote on June 28 with a two-vote margin, the chances of the bill facing a significant obstacle in the Senate diminished considerably.
Moderate conservative senators, especially those facing re-election in 2026, were particularly concerned about overly aggressive cuts to healthcare spending. A few hardline fiscal conservatives, however, were dissatisfied that the bill did not focus enough on reducing federal government spending and, instead, would worsen the U.S. deficit, especially during the 2025–2029 period when Trump is expected to be in office.
Moderate Republican leaders, like Lisa Murkowski, the longtime senator from Alaska, supported the bill but admitted that the vote was “painful.” Under Murkowski’s pressure, the Senate version of the bill preserved additional food stamp provisions for Alaska. However, she was unable to secure additional exemptions for Alaska in the healthcare reimbursement provisions.
Of the three Republican senators who voted against the bill, Rand Paul’s opposition was largely due to concerns that the bill would exacerbate the U.S. debt burden. He criticized Murkowski’s support for the bill, stating that while Alaska had been “protected,” the entire nation would bear the consequences. Murkowski defended her vote, arguing that her responsibility was to protect the people of Alaska, whose circumstances were more unique. She also criticized Congress for rushing the bill through due to the “artificial deadline of July 4” instead of focusing on creating the best possible law for America.
Since 2015, North Carolina Senator Thomas Tillis had expressed opposition to the healthcare provisions in the bill, noting that, due to federal disinvestment, North Carolina would bear a $30 billion cost. Tillis criticized the lack of bipartisan cooperation in Congress, claiming that many politicians didn’t take the time to understand how the legislation would affect everyday Americans.
After publicly opposing the Beautiful Bill, Tillis announced he would not seek re-election in 2026, stating that it wasn’t a “difficult decision” and implying that he would continue opposing both the Republican majority and Trump during the remainder of his Senate term. Trump responded by criticizing Tillis as someone who “only talks and complains,” further threatening to meet with those who may challenge Tillis in the upcoming midterms.
In a bid to delay the vote, Congressional Democrats had the entire 940-page bill read aloud before debating it, which took over ten hours. Afterward, there was another 26-hour period where amendments were made to the bill text and voted on. By the time the vote was finally held, senators had endured several days and nights of marathon work at the Capitol.
Final Decision Amidst Numerous Obstacles
Early predictions had indicated that the Senate would push for further cuts to spending and deficits, adhering to the principles of fiscal discipline, and making significant amendments to the House’s version of the Beautiful Bill. However, in the final versions from both chambers, the House had raised the U.S. debt ceiling to $40 trillion, while the Senate increased it to $50 trillion.
The core of the tax cuts in the Beautiful Bill centers on extending the personal income tax cuts from the 2017 Tax Cuts and Jobs Act and introducing provisions like Trump’s campaign promise to exempt tips and overtime pay from taxation. On the corporate tax side, the bill did not include Trump’s promise to lower the manufacturing tax rate to 15%, but instead, it allowed businesses to deduct 100% of capital expenditures upfront.
On corporate tax cuts, the House version extended the tax cuts from 2025 to 2029, the year Trump’s term would end, while the Senate version made these corporate tax cuts permanent, which increased the cost of the tax relief.
A key issue for the 2026 midterm elections is healthcare spending, which was further reduced in the Senate version. The Congressional Budget Office projected that the House version would lead to 10.9 million people losing healthcare by 2034, while the Senate version would increase that number to 11.8 million. The Senate also tightened documentation requirements for insurance enrollees and nearly halved the rate limits on what states could charge health insurance providers.
With these adjustments, the U.S. federal government’s spending on Medicaid, Medicare, and the Affordable Care Act (Obamacare) is expected to be reduced by approximately $1.1 trillion over the next decade, compared to the House version. The U.S. Treasury Department has warned that the worsening fiscal condition of healthcare could mean that U.S. seniors will no longer receive full benefits from programs like Medicare starting in 2033.
In addition to Democratic opposition, another point of contention within the Republican Party was the cap on state and local tax (SALT) deductions. The SALT deduction allows U.S. taxpayers to deduct certain taxes paid to state and local governments from their federal taxable income to avoid double taxation. Both the House and Senate versions of the bill raised the SALT cap from $10,000 to $40,000. However, the Senate version introduced provisions that benefitted higher-income groups, such as increasing the deductible rate for high-income earners from 32% to 35%, which reduced the tax burden on these individuals.
In terms of pressure on U.S. academic institutions, the Senate version was more moderate, but this also meant that federal revenue growth was less than in the House version. For instance, many U.S. universities’ endowment funds face a 1.4% tax rate on investment income, with the House raising that rate to 21%, while the Senate version reduced it to 8%.
Backlash in the Energy Sector and Broader Concerns
The changes in the energy sector, particularly related to clean energy, have led to fierce backlash. Musk once again criticized the Beautiful Bill on social media, stating that if it passed, he would form a new political party outside the two major U.S. parties.
Vancisco’s Alaric stated that the U.S. energy industry greatly benefits from the incentives for clean energy in the Inflation Reduction Act. He pointed out that Texas now produces more clean energy than California, noting that much of the improvement in U.S. productivity in recent years is due to the new investments in renewable energy brought by the Inflation Reduction Act and the establishment of new enterprises.
Public Attention on the Bill
Public attention in the U.S. has been mostly focused on the internal Republican debate about the scale of tax cuts versus the extent of spending reductions. Few American media outlets have highlighted the two provisions in the bill that target foreign individuals: the so-called “retaliatory tax” under Section 899 and the tax on cross-border remittances sent by foreigners outside the U.S.
The 899 provision, which includes possible taxation of dividends and interest on foreign investments in the U.S., has raised concerns about capital outflows from the U.S. This provision could also impose new tax burdens on multinational companies outside the U.S. As a result, global corporate giants have gathered in Washington to lobby Congress to eliminate the 899 provision. On June 26, just before the Senate vote, Treasury Secretary Bessent announced that the U.S. had reached a memorandum of understanding with the G7 countries on the OECD’s Pillar Two rules, which introduced a so-called “parallel tax system.” In exchange, the U.S. agreed to remove the 899 provision from the Beautiful Bill.
As for the remittance consumption tax under Section 4475, its impact was reduced after modifications in the Senate. Alaric pointed out that the House version of the bill did not set clear exemptions or thresholds for taxation. This meant that cross-border remittances made by a wide range of individuals, including green card holders, legal visa holders (such as H-1B workers, F-1 students, or B-1 tourists), and even legal residents who have not yet obtained U.S. citizenship, could be subjected to taxation. However, the Senate adjustments minimized this impact, narrowing the focus to remittances sent by undocumented immigrants or those potentially used for illegal purposes.
The Price of the Beautiful Bill
Despite Trump and Bessent’s claims that the Beautiful Bill will reduce debt by stimulating economic growth, analyses from various think tanks and financial institutions suggest that the bill could lead to more debt, higher deficit ratios, greater interest payments, widening income inequality, and, in the long run, slower economic growth.
These analyses argue that the Beautiful Bill is likely to bring more harm than benefit. The benefit is that, in the short term, it may mildly boost the U.S. economy, but it loses fiscal discipline in the process. The Economist magazine noted that the tax and spending reforms in the bill could create trouble for the U.S. Yale University’s Budget Lab estimates that, in the short run, the Beautiful Bill could increase the U.S. GDP growth by 0.2 percentage points annually from 2025 to 2027. However, due to the rising debt burden, higher interest rates, and the crowding-out effect on private investment, GDP growth will slow down annually after that. By 2054, U.S. GDP is expected to be nearly 3% lower than it would have been had the bill not passed.
Standard & Poor’s Global Ratings believes that by extending the 2017 tax cuts, the bill avoids a drastic decline in U.S. consumer spending, but the bill simply maintains the status quo on personal tax policies and provides little extra stimulus to the economy. On the corporate side, allowing 100% of capital investments to be deducted in the first year can only modestly promote economic growth in 2026.
While the Beautiful Bill may provide short-term support to the U.S. economy, the price is an increase in debt and a larger fiscal deficit for the U.S.
Debt and Fiscal Challenges Ahead
The U.S. currently has a debt of $36 trillion. According to the U.S. Congressional Budget Office (CBO) on July 1, the Senate version of the Beautiful Bill will add an extra $3.4 trillion to the U.S. federal deficit over the next decade, a higher increase than the $2.4 trillion projected by the House version.
Yale University’s analysis suggests that the Senate’s version of the bill, passed on July 1, will significantly increase the U.S. debt, with provisions such as the tip income exemption for labor-class workers, which is expected to be permanent even though it was initially set to expire in 2028. In this scenario, by 2055, the U.S. debt-to-GDP ratio could reach 186%. Currently, only Japan and Sudan have a higher ratio than this.
The result of high debt and high interest rates is that U.S. interest payments are expected to rise even further. Interest payments are already the second-largest expense in the U.S. after Social Security. For fiscal year 2024 (October 2023 to September 2024), U.S. interest payments are expected to exceed $1 trillion. According to the CBO, by 2055, U.S. interest payments could reach $4.8 trillion, with the ratio to GDP rising from the current 3.2% to 5.4%.
Even if the Beautiful Bill manages to expand revenue, combined with the explosive growth of U.S. tariff income, it is unlikely to reverse the continued deterioration of U.S. fiscal discipline. Especially with Social Security and Medicare spending already difficult to curb, the bill also increases defense and border spending. According to forecasts from several U.S. think tanks, over the next 30 years, the U.S. fiscal deficit as a percentage of GDP is expected to remain above 7%, a level historically seen only during financial crises and wars, but one that may become the norm for the U.S. deficit ratio in the future. This level of deficit contradicts the goal of reducing it to 3% by 2028, as stated by Bessent.
International rating agency Fitch downgraded the U.S. rating in 2023, stating that under Trump’s leadership, the U.S. faces significant fiscal challenges, as major mandatory reforms to Social Security and Medicare have not been addressed. “Government Efficiency” and other cost-saving measures are still uncertain. Fitch expects that during the remaining tenure of Trump’s administration, there will be no major changes in fiscal policy.
Against the backdrop of the U.S. failing to control its debt problem, the future of the economy, and how other countries should respond, is becoming an urgent issue.
Ray Dalio, founder of Bridgewater Associates, analyzes that the most subtle, yet the most popular and common way U.S. policymakers handle excessive debt is by lowering real interest rates and real exchange rates. The former reduces the pressure of repaying principal and interest, while the latter reduces the net debt burden of the U.S., with foreign investors shouldering the losses from the depreciation of the dollar.
George Sarevelos, Global Head of FX Research at Deutsche Bank, believes that in addition to the Beautiful Bill, recent comments by Federal Reserve Governor Waller and others about the possibility of a rate cut in July, along with discussions within the Fed regarding relaxing bank regulations, seem unrelated but actually indicate a significant shift in U.S. macroeconomic policy in the coming years. Deutsche Bank calls this shift the “Pennsylvania Plan,” named after the street where the U.S. Treasury is located in Washington, D.C. This plan aims to help the U.S. government manage its massive debt load.
The plan includes: transferring the ownership of U.S. Treasury bonds from foreign investors to domestic ones, strengthening U.S. domestic financial repression, vigorously promoting U.S. dollar stablecoins, pressuring the Fed to cut rates, and significantly weakening the dollar.
Deutsche Bank believes that due to the serious “twin deficits” (fiscal and trade deficits) in the U.S., no international creditors will be willing to participate in a restructuring unless the deficits improve. The so-called “Mar-a-Lago Agreement,” a plan to resolve the U.S.’s imbalances through tariffs, dollar depreciation, debt restructuring, and other measures, is seen as impractical.
Dalio cautions that if the U.S. cannot reduce its deficit-to-GDP ratio to 3%, it may face a massive debt-economic crisis. To reduce the deficit to 3%, both spending cuts and tax increases are necessary. However, political promises of “no new taxes” and “no cuts to welfare” are widely popular, making this a difficult challenge for Trump and the broader U.S. political landscape.