One element of modern statecraft is the persistent ability to create illusions of well-being for the relatively poor and deprived citizens. This is done through a mix of strategies, such as emphasising State largesse being doled out and giving less visibility to things denied by the State. It is also about marking enemies both within and outside the nation, continuously distracting attention away from the gaps in the quality of life. Policy prescriptions reflect these strategies of giving as well as denying. They also reflect some of the core values of the government in power. The “big, beautiful bill” of the president of the United States of America, containing his budget proposals, has many of these features. The tabled bill is nearly a thousand pages long, almost guaranteeing that only a handful of lawmakers will actually read the entire thing. It is an effective tactic to hide major issues in a mountain of words.
Independent of the sheer physical weight of the bill, the US’s budgetary process is different from many other countries. About two-thirds of the total spending is already committed by law enacted in the past. The current fiscal year gives limited discretionary powers to the president or the Congress for tinkering with expenditures and revenues. This year’s bill has already been passed by the Senate. It has gone to the House of Representatives and is widely expected to reach the Oval Office by July 4, 2025. There could be further amendments but it is unlikely that the core substance of the proposals will be changed significantly. Here are some of the major features.
On the revenue side, there are proposals for across-the-board tax cuts from the billionaires down to the poor. This is the most emphasised aspect of the budget. It is estimated that roughly 95% of US citizens will receive some benefit, however paltry, from these cuts. The bulk of the benefits will accrue to the top 20% of income earners, and even more so to the top 1%. There are fine-print issues too. A couple of examples will show what is meant by illusions. The removal of the tax on tips has been favoured by the US president as a progressive move. Most tip earners, though, are not liable to pay tax as they are below the tax threshold. On the other hand, richer professionals could game the system by reclassifying their earnings as tips, so as to avoid taxes. Another example is the child tax credit. While this has been enhanced, a child might be denied this benefit if both parents are not US citizens. The tax cuts are to the tune of over $4 trillion, including the tax cuts as per law passed during Trump’s earlier tenure in office. The proposed tax cuts would further increase the degree of economic inequality. The administration’s focus is, however, on the poor getting benefits.
The second feature concerns national safety. There are large spending hikes on defence and homeland security. The defence budget will blow up to one trillion dollars — a defence budget that is more than the combined total of the next 15 nations’ defence spendings. These funds will contribute towards making the US’s international borders secure, and the creation of an internal machinery that specialises in finding illegal migrants and deporting them. Often, this illegality is controversial. People who have entered are declared illegal by the act of taking away their temporary status. Then they are rounded up. This is an illusion of safety where a marked set of enemies in the form of migrants and foreigners help Trump allay the fears of his multi-racial working-class coalition.
The next important feature is complicated and reflects a core value of the current government — not to encourage and support the poor and the weak. This is reflected in the proposed expenditure cuts, which include spending on healthcare in the form of Medicaid and Medicare, food stamps, and social security. These cuts are packaged in the form of a rationalisation of inefficient and wasteful federal spending. Yet, most available statistics relating to inefficiencies are much less than the cuts announced. It is expected that anywhere between eight to ten million Americans, at least, will lose their healthcare privilege. In some cases, access to benefits has been enhanced. But the net effect is likely to be adverse in terms of a large-scale exclusion of privileges, especially if one is unemployed, physically challenged or has had some issue with immigration authorities. A citizen could be happy that the government is cutting waste and weeding out non-existent beneficiaries. Despite that, the denial of privileges is likely to be widespread.
The most worrisome feature of the bill is that it adds to the burgeoning size of the budget deficit and the level of federal debt. The US had been able to withstand large-scale budgetary deficits, as well as large current account deficits in international trade, because people believed in the US dollar and accepted IOU notes in the form of US treasury bonds. Hence, the US could get away by simply printing dollar bills or issuing bonds. For the last forty-odd years, this belief has prevailed. The dollar is the de facto reserve currency of the world. In the current bill, the deficit is supposed to go up significantly over the present decade. The total debt has already crossed 100% of the US’s gross domestic product. The assumption of the federal government is that the faith in the US dollar will continue. If this faith is shaken, the current holders of US bonds may decide to sell. Indications of this emerging trend are already discernible in financial markets. This will weaken the dollar and raise the cost of borrowing for the US. The debt bomb then might simply explode. The original faith is being shaken precisely because Trump is trying to make the US an isolationist economy by indulging in tariff wars and distancing from long-time allies.
For the supporters of Trump, the tax cuts are good news, even if the benefits are paltry. But these benefits have to be juxtaposed with the taking away of much of the assistance in terms of healthcare, and the wider social safety net. It is unlikely that on the macroeconomic front new employment and livelihoods will be opened up in a hurry. Business uncertainty and prices are both expected to rise due to tariffs. The rich are happy with their tax cuts and stock markets, though bond markets may still play spoilsport. The military contractors who produce arsenals for armies will be happy with the defence budget.
There are three key consequences of this bill. One, there will be a significant redistribution of income from the poor to the rich. It will add to the already astonishing degree of inequality prevailing in the economy. Two, there will be a redistribution of resources from the future to the present with the elimination of budgetary support for all climate change projects and associated research in universities. On the climate-change front, the future of the world looks significantly worse now, given the US’s decisions. Three, there will be a redistribution of attention away from the young by restricting education systems and educational spending budgets. In the US, while the traditional working class has turned against the educated elite, it is the billionaires and the ‘tech bros’ who are preparing to run away with the jackpot.
Anup Sinha is former Professor of Economics, IIM Calcutta