Big Beautiful Bill
View(s):On Monday evening, we participated in a panel discussion on the topic: “Impact of US Tariffs and the Middle East Conflict on Sri Lanka’s Exports” organised by the Chartered Institute of Personal Management (CIPM). As we were discussing about Sri Lanka’s vulnerability and policy options against external shocks, on the same day US Senators were debating Trump’s controversial BBB.
Trump had stated his intention to have the Big Beautiful Bill ready for his signature by July 4, 2025, coinciding with US Independence Day. This ambitious timeline hinges upon the bill receiving approval from both Congress and the Senate before it reaches his desk for signing to become law.
Guests join US President Donald Trump during a “One, Big, Beautiful” event on June 26 in Washington, DC.
Two “frenemies”
Tech billionaire Elon Musk—once a close ally of Donald Trump during his election campaign and later appointed as the head of the newly formed Department of Government Efficiency (DOGE)—issued a warning via his social media platform, X:
“Every member of Congress who campaigned on reducing government spending and then immediately voted for the biggest debt increase in history should hang their head in shame!”
When the Bill is passed in the Senate, Elon Musk is expecting to form a new political party: If the “…insane spending bill passes, the America Party will be formed the next day”. He further added that “Our country needs an alternative to the Democrat-Republican uniparty so that the people actually have a voice”.
In his Truth Social platform, Trump responded too: “Elon may get more subsidy than any human being in history, by far, and without subsidies, Elon would probably have to close up shop and head back home to South Africa. No more Rocket launches, Satellites, or Electric Car Production, and our country would save a fortune. Perhaps we should have DOGE take a good, hard, look at this? Big money to be saved!”
Unimaginable end
In response to the ballooning US national debt—which soared to $35 trillion by 2024—Donald Trump launched a series of bold and ruthless spending cuts. Acting through the DOGE (led at the time by Elon Musk), his administration implemented drastic cost-saving measures: cancelling government contracts, reducing the federal workforce, and selling off assets. These actions reportedly have saved $55 billion to the government.
Trump also withdrew the US from the World Health Organization (WHO) and the Paris Climate Agreement, abruptly reversing its long-standing global commitments. By early 2025, more than 80 per cent of the US Agency for International Development’s (USAID) programmes had been slashed, effectively shutting down most of USAID operations worldwide.
Since the end of World War II, the US positioned itself as the world’s benefactor—disbursing development and military aid and engaging in conflicts on behalf of others. It enjoyed the privilege of printing money, underpinned by global trust in the US dollar, and issuing debt that was eagerly absorbed by foreign governments to bolster their reserve holdings.
However, this era of unchecked spending has led to an exponential rise in public debt. The US now finds itself in a precarious position, forced to borrow more just to service maturing debt obligations—an ominous echo of crises faced by countries like Sri Lanka.
The debt burden continues to expand not only due to excessive spending but also because of the growing need to refinance existing obligations. The unsettling truth: No one knows how this story ends—and the conclusion may defy any imagination.
Fiscal reforms
The BBB has introduced far-reaching fiscal reforms to the US federal budget. On the revenue side, the legislation makes permanent the previously temporary tax cuts that were set to expire this year. It also boosts child tax credits for families with children under the age of 17 years and introduces tax breaks for senior citizens.
In addition, it eliminates income taxes on overtime wages and tips received at restaurants and hotels—previously considered taxable income. Small businesses are also granted significant tax relief, including the reinstatement of bonus depreciation and incentives for research and development expenditures.
On the expenditure front, military spending has been increased by $150 billion, a package that includes funding for the “Golden Dome” missile defence system. An additional $50 billion has been allocated to expand the border wall in an effort to deter migration, while immigration enforcement activities are set to receive between $90 and $150 billion.
Conversely, spending on health insurance programmes like Medicaid and on food assistance (SNAP) has been cut. Clean-energy tax credits have also been reduced, and incentives for electric vehicle manufacturers have been eliminated—giving traditional automakers a competitive edge.
Avoiding default
With the introduction of sweeping fiscal reforms, the BBB raised the statutory debt ceiling to $41.1 trillion—a $5 trillion increase from the previous ceiling of $36.1 trillion, which had been set just six months earlier in January 2025.
This upward revision was deemed essential to avoid a potential default and to accommodate the bill’s expansionary fiscal outcome, which includes making temporary tax cuts permanent and ramping up federal spending. The increase is widely viewed as a short-term adjustment cost, with the expectation that long-term benefits will emerge once the reforms begin to take effect through improved growth prospects.
According to estimates by the Congressional Budget Office (CBO), the legislation would add $2.8 trillion to the national debt over the next decade. Critiques argue that it marks one of the largest upward transfers of wealth in US history. Supporters, however, contend that the bill will stimulate economic growth and safeguard essential social programmes by cutting waste and fraud.
Calm before storm
Raising the debt ceiling is far from unprecedented in US history. In fact, the federal government has revised or extended the statutory borrowing limit 78 times over the past 65 years, underscoring how frequently the limit must be adjusted to meet existing fiscal obligations.
In January 2023, the national debt hit its then-maximum limit of $31.4 trillion, prompting a critical increase that helped stave off default. This move was followed by the passage of the Fiscal Responsibility Act in June 2023.
The year 2024 was largely a period of relative calm—a “calm before the storm”. But with the arrival of January 1, 2025, the debt ceiling was reinstated at $36.1 trillion. To prevent an immediate crisis, the government resorted to a set of temporary “extraordinary measures” designed to delay default. Nevertheless, many forecasts continued to warn of a looming fiscal reckoning with possible default by the third quarter of the year.
Implications
The fiscal reforms introduced under the BBB are designed to benefit Americans across all income groups—including the working class, middle-income families, and wealthy individuals. Senior citizens and small businesses are also among the winners of the revamped tax policies. However, recipients of social safety net programmes, the green energy sector, and electric vehicle (EV) manufacturers—including Elon Musk’s own EV brand—have seen setbacks as a result of the reforms.
According to current projections, the US budget deficit is expected to grow by $4.5 to $5.5 trillion over the next decade. Correspondingly, the public debt-to-GDP ratio is forecast to increase from 123 per cent in 2024 to 130 per cent by 2035.
The CBO anticipates a substantial long-term impact on both the federal deficit and the interest burden. The Committee for a Responsible Federal Budget has warned of a potential “dangerous debt spiral without offsetting revenue measures”. Meanwhile, the Brookings Institution criticises the reforms as “fiscally reckless and overwhelmingly favouring upper-income groups,” in stark contrast to the Heritage Foundation, which describes the package as containing “pro-growth tax cuts.”
The ultimate outcome of Trump’s fiscal overhaul will hinge on how the broader economy responds under varying conditions. A widening budget deficit could generate upward pressure on inflation—particularly when combined with rising tariff protections. In turn, any corrective responses, such as interest rate hikes or a strengthening of the US dollar, are likely to trigger ripple effects across the global economy in the years ahead.
(The writer is Emeritus Professor at the University of Colombo and Executive Director of the Centre for Poverty Analysis (CEPA) and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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