Outlook for Trump 2.0's Second 100 Days: Tax Cuts Bill – Widening Wealth Gap, Unwanted U.S. Debt?

TradingKey - In the first 100 days of Donald Trump’s return to the White House, his administration focused on cutting government spending, imposing high tariffs, and challenging the Federal Reserve. Looking ahead to the second 100 days of Trump 2.0, the centerpiece of his agenda will likely be a new tax cuts bill, potentially accompanied by debates over the debt ceiling and cuts to healthcare benefits.

According to MarketWatch , over the next three months, the U.S. government’s attention will shift to whether Congress will pass Trump and the Republican Party’s proposed tax cuts bill.

Tax cuts were seen as one of the biggest victories for Republicans during Trump’s first term. In the 2024 U.S. election, promising to make the tax cuts permanent was a core part of his campaign. Building on the existing tax cuts, Trump plans to introduce additional incentives, such as expanding state and local tax deductions (SALT) and eliminating taxes on tip wages.

However, advancing these tax cuts won’t be easy for Trump, given the immense fiscal pressures the U.S. currently faces, including its massive debt burden and the thorny issue of the debt ceiling.

Efforts to increase revenue through higher tariffs and reduce spending via federal government layoffs and proposed healthcare benefit cuts have faced strong opposition both domestically and internationally.

So far, both the Senate and the House of Representatives have passed separate budget resolutions. Later, these must be reconciled so that the tax bill can pass both chambers of Congress and ultimately be signed into law by Trump.

In early April, the Senate passed a budget resolution that would extend Trump’s 2017 tax cuts, reducing taxes by at least $1.5 trillion over the next decade while cutting $4 billion in spending and raising the debt ceiling by $5 trillion. A few days later, the House passed a budget blueprint that includes $5.3 trillion in tax cuts, at least $1.5 trillion in reduced government spending, and a similar $5 trillion increase in the debt ceiling.

Tax Cuts + Tariffs: The Rich Get Richer, the Middle Class Poorer

Following the budget resolutions in both chambers of Congress, although Republicans unlocked the "reconciliation" mechanism—allowing them to pass legislation with a simple majority without Democratic obstruction—the bill faces widespread criticism from society.

Research indicates that in the final version of the bill, Republicans may cut $400 billion from Medicaid over the next decade. Moreover, Trump’s tax cuts are likely to disproportionately benefit the wealthy, further disadvantaging lower-income groups.

The Center on Budget and Policy Priorities (CBPP) found that extending the 2017 tax cuts, implementing the House’s envisioned Medicaid cuts, and imposing record-high tariffs would lead to an average income loss of $1,870 for households earning less than 60% of the median income. For the bottom 20% of households, income losses could reach $2,270, while the wealthiest 1% of families could gain a net benefit of $25,500.

Analysts point out that the widening wealth gap caused by Trump’s policies stems from an imbalanced tax structure, the fact that wealthy households don’t rely on Medicaid, and the much lower proportion of income that affluent families spend on imported goods.

The CBPP noted that for most Americans, the income losses caused by tariffs outweigh the income gains from extended tax cuts.

Senate Democratic Leader Chuck Schumer accused Trump of betraying the American people, saying Republicans are siding with billionaires at the expense of the middle class.

Debt Ceiling: Unwanted U.S. Bonds, Higher Treasury Yields

Analysts believe that Trump’s tax cuts bill may need to include provisions to raise the debt ceiling. After hitting the debt limit in January, the U.S. Treasury’s extraordinary measures are expected to run out by July or August. If the debt ceiling isn’t resolved before then, the U.S. risks defaulting on its debt.

AEI analysts argue that there shouldn’t be high expectations for significant economic stimulus from extending the 2017 tax cuts, as these measures are already in place and won’t inject new vitality into the economy.

Thus, if the debt ceiling is raised, given the already high levels of U.S. debt and the government’s post-pandemic push of economic demand beyond productive capacity, U.S. bonds may face weak demand, leading to higher Treasury yields.