Explainer: How "One Big Beautiful Bill Act" deepens U.S. debt problem

U.S. economists and budget analysts argue that "One Big Beautiful Bill Act" may exacerbate an already unsustainable debt burden and even lead to a debt crisis.

BEIJING, June 9 (Xinhua) -- The political marriage between U.S. President Donald Trump and U.S. billionaire Elon Musk came to a dramatic and public end, after the latter scathingly condemned the administration's flagship economic proposal, the "One Big Beautiful Bill Act," labelling it a "disgusting abomination."

Musk's high-profile break with Trump has amplified a wave of bipartisan disputes over the bill, which was passed narrowly in the House. Although designed to deliver sweeping tax cuts and fulfill campaign promises, economists and budget analysts argue that the bill may exacerbate an already unsustainable debt burden and even lead to a debt crisis in the long run.

WHY SO CONTROVERSIAL?

Trump's megabill is a legislative package that combines tax and spending cuts with provisions on issues such as border security, energy exploration, and welfare reform. The bill was passed in the House last month by a 215-214 vote and is currently awaiting deliberation by the Senate. At its core, the bill aims to extend the 2017 tax cuts -- Trump's most significant legislative achievement during his first term.

Musk repeatedly took to his social media platform X to denounce the bill -- which called for cuts to electric vehicle credits -- as wasteful.

The bill includes 1.2 trillion U.S. dollars in spending cuts over a decade but would raise budget deficits by 2.4 trillion dollars, according to a Congressional Budget Office (CBO) estimate released Wednesday.

The nonpartisan budget office also projected that close to 11 million more people would be uninsured in 2034 because of changes to Medicaid included in Trump's megabill.

Proponents argue that the bill will unleash growth and reduce the deficit "in the long run."

Russell Vought, director of the White House Office of Management and Budget, claimed that Trump's bill would reduce the deficit "when you adjust for CBO's one big gimmick -- not using a realistic current policy baseline." The White House maintains that the CBO has an "artificial baseline" that does not factor in the 2017 tax cuts.

However, budget experts have voiced concerns that the debt crisis, which was once dismissed as alarmism, is now alarmingly close to becoming a reality.

Peter Orszag, chief executive of investment bank Lazard and a former U.S. budget director, was quoted by The Wall Street Journal as saying that those who bemoaned the unsustainability of deficit spending and debt levels during his time in government "seemed to cry wolf -- a lot."

Now he is worried, too, because the wolf is "lurking much closer to our door." As he put it, the current fiscal strategy looks less like sound policy and more like "budgetary wolf bait."

The CBO estimated that the bill would add about 3.8 trillion dollars to the federal government's debt over the next decade.

According to the nonpartisan Committee for a Responsible Federal Budget, it would add around 3 trillion dollars to debt levels over the next decade compared with existing estimates and 5 trillion dollars if certain temporary features were made permanent.

HOW BAD IS DEBT SITUATION?

So why are many now alarmed? Because the numbers have become overwhelming. Annual interest payments on the national debt have surpassed 1 trillion dollars, and policymakers in Washington continue to spend with little restraint. The fiscal state of the United States is increasingly dire.

As of mid-2025, the U.S. national debt stands at over 36.2 trillion dollars, and the debt-to-GDP ratio has exceeded its peak during World War II. According to the CBO's January 2025 Budget and Economic Outlook, this ratio is on track to hit 118 percent by 2035.

The U.S. federal deficit for fiscal year 2025 had already reached 1.1 trillion dollars by April -- a 13 percent increase from the same period last year. Although revenues have risen by 5 percent, government outlays have increased even faster, growing by 7 percent.

At the same time, borrowing is becoming more expensive. The 10-year Treasury yield has climbed from 3.6 percent in September 2024 to 4.4 percent in mid-2025.

If the 10-year were to hover around 4.4 percent permanently and yields on other Treasury securities were to increase equally, it would add an extra 1.8 trillion dollars to the debt above projections over the next decade, which is enough to counter the likely revenue gains from tariffs if they were to go into effect after the 90-day pause, said the Committee for a Responsible Federal Budget in a report.

Notably, about 30 percent of U.S. federal debt is held by foreign investors.

Moody's Ratings last month slashed U.S. long-term issuer and senior unsecured ratings to Aa1 from Aaa citing rising government debt and interest payment ratios.

"This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns," said a release by Moody's Ratings.

Rising tariffs and political instability discourage foreign investment, pushing the government to rely more heavily on domestic borrowing and at higher costs, warned Kent Smetters, a professor at the University of Pennsylvania's Wharton School and faculty director of the Penn Wharton Budget Model.

If foreign demand for U.S. Treasuries wanes, the result could be a vicious cycle of rising rates, shrinking demand, and ballooning debt.

WHAT LED TO U.S. DEBT CRISIS?

The debt ceiling, or the U.S. Treasury Department's "credit limit," is the maximum amount of debt set by the U.S. Congress for the federal government to fulfill its payment obligations.

When created in 1917, the debt ceiling was designed to maintain a regular check on government spending and control debt growth. However, in recent years, it has become a more frequent topic in partisan debates between Democrats and Republicans.

Since 1960, the U.S. Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit.

Much of the debt accumulation in recent years has not been driven by emergencies like wars or recessions, but by political choices to cut taxes while maintaining or expanding spending.

While reining in the debt growth will benefit the U.S. economy in the long run, no administration or party wants to upset voters with funding cuts or tax increases. Instead of funding these additional expenditures through fiscal reform, they keep borrowing, thus driving up debt to an unprecedented scale.

The fact that America continues to borrow recklessly without going bankrupt is a result of the dollar's hegemony.

As the dominant global reserve currency, the U.S. dollar still accounts for nearly 60 percent of international reserves, and roughly 48 percent in the global payment system.

Due to the global dominance of the dollar, U.S. Treasury bonds, with their safety and liquidity, are widely considered safe-haven assets.

Driven by the impulse to profit from dollar hegemony, the United States has long maintained a trade deficit, exporting both dollars and inflation. Through massive debt issuance, it encourages the repatriation of dollars, creating a cyclical system of "debt monetization." As a result, fiscal deficits have ballooned, budgetary discipline has eroded, and U.S. government debt has become an unwieldy burden.

From a market supply-and-demand perspective, as long as there are willing buyers, the U.S. debt cycle can go on indefinitely. However, without real repayment capacity, the practice of endlessly rolling over old debt with new debt increasingly resembles a Ponzi scheme in essence.

The moment international markets begin to question America's willingness or ability to manage its finances, the consequences could be swift and severe. The ultimate question isn't just whether the United States can afford another "Big Beautiful Bill," but whether the world can continue affording America's debt addiction.■