Market focus shifts to the U.S. tax reduction bill, a comprehensive understanding of "Trump 2.0" tax reduction drama

Trump's ambitious tax reform and immigration bill has made its debut in Congress, and if passed, it will reshape the functions of the federal government and the economic landscape of the United States. However, there are significant divisions within the Republican Party, making the bill's prospects uncertain.

Recently, House Republican leaders released the text of a new tax cut and spending reduction bill, planning to submit it for a full House vote before Memorial Day. After that, the bill will be submitted to the Senate for review. Trump welcomed the bill on Monday, calling it a "grand and beautiful bill," and expressed hope to sign it into law before July 4.

This large-scale tax and immigration package will extend the 2017 tax cuts, significantly increase border security spending, cut several social welfare programs, limit climate change investments, and introduce various innovative tax credits.

The Republicans can bypass the Senate's 60-vote filibuster threshold through a process called "budget reconciliation," allowing them to pass Trump's agenda without Democratic assistance. However, Republican lawmakers still have disagreements over the details.

Fiscal conservatives criticize the plan for failing to effectively curb the ever-expanding federal deficit. According to the latest assessment from the Joint Committee on Taxation (JCT), the tax bill being pushed by Republicans will create a $3.7 trillion deficit for the U.S. Treasury over the next decade. Although this figure falls within the $4.5 trillion budget blueprint approved by Congress earlier this year, it has already sparked dissatisfaction among budget hawks within the party.

Some Republicans are also concerned about energy projects in their districts being hindered, and lawmakers opposing changes to the state and local tax (SALT) deduction cap have expressed discontent. Additionally, the plan's provisions regarding cuts to Medicaid have also sparked protests.

However, the Republicans hold a slim majority in the House with only 220 to 213, meaning they can only afford a few defections. Meanwhile, the Senate's 53-47 majority is also insufficient to guarantee the bill's smooth passage.

Here are the key points of the bill:

Extend Trump's Tax Cuts, Limited Relaxation of SALT Cap

The bill will extend one of the most representative legislative achievements of Trump's presidency—the individual tax cut provisions in the 2017 Tax Cuts and Jobs Act—and fulfill some (but not all) of the president's campaign promises. Additionally, the bill plans to establish new savings accounts for newborns.

The 2017 tax cut law benefited individuals across nearly all income levels, but the primary beneficiaries were high-income groups and corporations. The corporate tax cuts are permanent, while the individual cuts are set to expire at the end of this year. The new bill not only extends the low individual tax rates but also plans to gradually raise the state and local tax (SALT) deduction cap over the next four years: the cap for married couples filing jointly will increase to $32,000, and for individual filers, it will rise to $16,000.

Significant Tightening of Immigration Policy

The bill allocates over $140 billion for border security and immigration enforcement. Of this, over $50 billion will be used to expand the U.S.-Mexico border wall and other defensive facilities; about $45 billion will be invested in the construction and operation of detention centers; and another $14 billion is specifically earmarked for deportation efforts. This budget allocation highlights the new government's tough stance on immigration issues and may bring new business opportunities for related construction, security, and contracting companies

Social Welfare Reform: Cuts to Medical and Food Assistance

The most controversial part of the bill is the significant cuts to Medicaid, which are expected to reduce spending by $625 billion over ten years, potentially leading to 8.7 million people losing health insurance, with an additional 7.6 million becoming uninsured.

The bill introduces several new requirements: a co-payment mechanism for individuals with incomes exceeding 100% of the federal poverty line; and a work requirement for most healthy, childless adults.

On Tuesday, as the House Energy and Commerce Committee prepared to review this part of the bill, dozens of protesters (many in wheelchairs) gathered in the hallway to protest. A nursing assistant from California, Josephine Rios, pleaded at the entrance for lawmakers: "Where is your conscience? Please vote no."

Additionally, the bill shifts more management costs of SNAP (Supplemental Nutrition Assistance Program, formerly known as food stamps) to state governments. The 28 states with higher "improper payment rates" will have to bear 25% of the benefit distribution costs and 75% of the administrative expenses. This will force local governments to make difficult choices between cutting benefits and raising taxes.

Targeted Tax Cuts

The bill also includes several structural tax cuts, primarily aimed at specific groups, including:

An additional $4,000 standard deduction for taxpayers aged 65 and older

Tax cuts for tip income in the service industry

Introduction of a new deduction mechanism to exempt overtime pay from tax burdens

Allowing consumers who purchase American-made cars to deduct up to $10,000 in loan interest over four years

Increasing the tax credit per child from $2,000 to $2,500

It is worth noting that most tax benefit programs require taxpayers to have a Social Security number, which effectively limits non-citizens' eligibility for these benefits.

Restructuring Education Policy: Incentives for Private Schools, Pressure on Higher Education

The bill makes significant adjustments to the education financing structure: it substantially increases the taxation of college endowment fund earnings and establishes a tiered tax rate system based on per-student donation levels.

At the same time, it establishes a four-year, $20 billion (with $5 billion per year) tax credit program to encourage families to pay for private school or homeschooling-related expenses.

Another transformative measure is the establishment of the "MAGA Account" (Growth and Progress Fund Account): newborns will receive an initial deposit of $1,000, and parents or guardians can contribute up to $5,000 annually before tax until the beneficiary turns 31.

Major Shift in Energy Policy: Support for Fossil Fuels, Cuts to Green Incentives

The bill will eliminate the maximum $7,500 federal tax credit for consumers purchasing electric vehicles and plans to gradually withdraw financial incentives for clean energy sources like wind and solar.

In contrast, fossil fuel policies are experiencing a comprehensive revival. According to the Natural Resources Committee's assessment, the bill will raise approximately $20 billion through mandatory oil and gas leasing auctions in the Gulf of Mexico and Alaska reserves.

Defense Budget Surge: Funding Secured for "Golden Dome" System

The bill allocates approximately $150 billion to the Department of Defense, covering multiple priority areas:

$34 billion for ammunition and supply chain strengthening

$33.6 billion invested in shipbuilding projects

$20 billion for missile defense and space military capabilities, including support for the "Iron Dome" intercontinental missile defense system—one of the strategic armament projects strongly promoted by Trump.

Debt Ceiling Increase

Currently, the U.S. government has theoretically reached its debt ceiling by the end of 2024, and the Treasury is employing "extraordinary measures" to delay default risks. The Treasury stated that these measures will be exhausted by August at the latest. According to the bill, the debt ceiling will be raised by $4 trillion to allow room for future budget execution