Trump’s Big Beautiful Bill
Last month, the United States House of Representatives passed Donald Trump’s absurdly named “One Big Beautiful Bill Act,” a 1,038-page legislative juggernaut championed to deliver on campaign promises including “a hodgepodge of controversial tax breaks for the wealthy, spending reductions and increased work requirements for food aid and Medicaid programs and huge funding increases for President Trump’s mass migrant removal program…”, according to The Hill News.
The bill, now facing Senate scrutiny, promises sweeping changes to America’s fiscal, social, and legal framework, in addition to what many suggest are economic and market risks and societal costs.
For investors, the bill’s tax cuts, spending redistributions, and regulatory overhauls could change market leadership and materially reshape global market relativities, interest rates, gold, Bitcoin and the U.S. Dollar.
According to the Congressional Budget Office (CBO), the bill’s most glaring issue is its projected addition of US$3.8-US$5 trillion to the federal deficit over a decade. By permanently extending the 2017 Tax Cuts and Jobs Act and introducing new tax breaks, the legislation relies heavily on a speculative 10 per cent global tariff to generate US$2.3-US$3.3 trillion in revenue.
Meanwhile, Moody’s recent Aa1 downgrade of the U.S. credit rating, citing unsustainable debt, signals rising borrowing costs and puts pressure on Treasury yields – something the stock market dislikes intensely.
Investors face increased risks, and volatility seems to be the only likely outcome.
A little detail
Trump’s proposed tax structure heavily favours high-income earners, with measures like raising the estate tax exemption to US$15 million and increasing the State and Local Tax deduction cap to US$40,000. The CBO projects a four per cent resource boost for the top one per cent by 2027, while low-income households could see a four per cent income drop by 2033. Luxury goods and real estate in high-tax states may see increased demand, as could high-end property firms. However, middle-class retailers could falter if tariffs inflate consumer prices, perpetuating the cautious outlook for consumer discretionary stocks, and more recently, a weaker-than-expected employment picture.
Elsewhere, social safety net programs face severe cuts, with US$700-US$880 billion slashed from Medicaid and US$267 billion from SNAP – the Supplemental Nutrition Assistance Program – a federal program that provides food assistance to low-income individuals and families over ten years. Estimates suggest the stricter eligibility rules and work requirements could result in coverage being stripped from 7.6-13.7 million people and food aid from 11 million.
Meanwhile, the expiration of Affordable Care Act premium tax credits threatens to leave millions uninsured, posing risks to them and to healthcare providers, who are heavily reliant on Medicaid.
The Act’s immigration provisions allocate US$105.5 billion for border security, including US$14 billion for deportations and US$46.5 billion for border wall construction, creating a windfall for construction firms and security contractors that might be linked to Trump or his representatives.
Meanwhile, measures like indefinite child detention and US$1,000 asylum fees raise ethical concerns, which could potentially trigger Environmental Social and Governance (ESG)-driven divestment.
As a supporter of a fair and democratic society, I believe the bill’s assault on judicial oversight undermines the judiciary’s ability to check political executive power by barring federal funds from enforcing contempt citations. Buried in the thousand-odd pages was this:
“No court of the United States may use appropriated funds to enforce a contempt citation for failure to comply with an injunction or temporary restraining order if no security was given when the injunction or order was issued.”
The bill, therefore, effectively requires payment of a bond before a federal judge can issue an injunction against the government or a private party. Yet “those seeking such court orders generally do not have the resources to post a bond”. Injunctions have been used to force the government’s compliance with federal law since at least 1913. As U.S. law professor Erwin Chemerinsky explained to Just Security, by mandating the pre-payment of a bond as a prerequisite to injunctions, “the House bill would make the court orders in these cases completely unenforceable.” The measures are therefore a means of undermining the U.S. accountability system for Trump’s own benefit and represent a weakening of the power of the people.
As an aside, on 22 May, in the Supreme Court of the United States, a 6-3 majority overruled a 90-year-old precedent upholding Congress’s ability to require presidents to show cause before firing the heads of certain agencies, in Trump v. Wilcox. As Justice Elena Kagan noted in her dissenting opinion, by firing the agency heads without providing a reason, “Trump has chosen … to take the law into his own hands” in a way that no president has attempted “since the 1950s (or even before).” And the majority handed Trump his win “on an emergency docket,” which, wrote Kagan, “while fit for some things, should not be used to override or revise existing law.”.
Meanwhile, the Trump bill’s 10-year ban on state-level Artificial Intelligence (AI) regulation, ostensibly aiming for national uniformity, offers another immediate benefit for Trump’s allies among the mega-cap tech monopolies, but risks weakening consumer protections, privacy and even their safety.
Keeping with the subject of democracy, nonprofit advocacy faces a challenge, as the bill allows the administration to label organisations as “terrorist-supporting” and revoke their tax-exempt status. While this could suppress funding for environmental or social justice initiatives, impacting ESG-focused investments, the bigger issue is that it suppresses free speech and activism by giving the executive branch broad authority to silence dissenting voices. That cannot be good for the U.S. dollar, whose reserve status is at least partly supported by its representation of democratic leadership globally.
Finally, traditional energy firms – think ExxonMobil – benefit from the bill’s environmental rollbacks, including expanded logging and repealed clean energy credits.
Afterthoughts
Pushed through the House in a matter of weeks, with last-minute changes to secure votes, some Republican senators argue the bill was rushed, limiting scrutiny and risking flawed policy. Admittedly, that’s a common refrain when passing legislation anywhere, and it’s not something Trump cares about.
And lest you think the Bill’s supporters read the document thoroughly, think again. It has been reported that Republican Marjorie Taylor Greene admitted that not only did she not read Donald Trump’s tax and spending bill before voting for it, but she would have voted against it had she read it thoroughly. Greene reportedly revealed she was unaware of the provision in Trump’s Bill act that prevents states from regulating artificial intelligence systems for a decade. Greene has said she would have voted against the entire bill if she had known about the AI language buried on pages 278-279. Geene has understandably now drawn widespread criticism from Democratic colleagues.
Importantly, perhaps, the bill’s US$3.8 – US$5 trillion deficit increase stems from tax cuts, including a raised estate tax exemption to US$15 million and a US$40,000 State And Local Tax (SALT) deduction cap, alongside US$105.5 billion for immigration measures like border wall construction and deportations. These policies outstrip revenue from a proposed 10 per cent global tariff, expected to yield US$2.3-US$3.3 trillion. To finance this shortfall, the Treasury must issue more debt, increasing the supply of government bonds. This, in turn, pushes up Treasury yields as investors demand higher returns to absorb the additional supply, raising borrowing costs across the economy.
Meanwhile, Moody’s downgrade of the U.S. credit rating, citing unsustainable debt, amplifies this effect, signalling higher risk premiums.
The cumulative effect of these dynamics – rising deficits, inflationary pressures, societal disaffection and economic uncertainty – creates conditions for market instability. But the biggest issue for investors will ultimately be the extent to which the U.S. Federal Reserve is willing to engage in liquidity programs that support markets, because support is what they will inevitably need.
Increased Treasury issuance to fund the deficit pushes up yields, tightening financial conditions. If yields spike, equity markets, particularly growth stocks, could sell off due to higher discount rates. The Federal Reserve would have to respond with liquidity injections, such as open market operations or repo market interventions, to stabilise bond markets and prevent a liquidity crunch.
Meanwhile, tariff-driven inflation and tax-cut-fueled demand could force the Federal Reserve to raise interest rates to cool the economy at a time when bonds are already selling off. However, higher rates risk choking off growth, especially with social safety net cuts dampening demand again. To balance this, the Federal Reserve must inject liquidity to support credit markets, ensuring banks and businesses maintain access to capital.
Our warning to expect more volatility in equities over this Presidential term remains in place.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
