Cogito Ergo Non Serviam
Senate Passes Tax Bill, Back to House
The US Senate has finished is stupidly named vote-a-rama on the big tax bill the president is aching to sign. It finally got to the end of the amendments and passed the resulting package on a 51-50 vote. The vice-president in his role as President of the US Senate to break the 50-50 tie. Three Republicans joined the Democrats in voting against it: Rand Paul (R-KY), Thom Tillis (R-NC) and Susan Collins (R-ME). The vote that got the GOP to 50 came from Lisa Murkowsky of Alaska, who demanded a carve out for her state in exchange for her vote. She still calls the bill a bad one. It now returns to the House so they can address the amendments made in the Senate. Passage is likely but not inevitable.
The bill is a disaster for the country, and the global economy will suffer as well. It extends the tax cuts that Mr. Trump foisted on the country in his first term. When the economy is booming (as it was then) a tax cut is folly and inflationary. The Covid pandemic delayed its impact, but it pumbed an extra $1 trillion into the money supply each year. That exaggerated the effects of the supply-chain disruptions that received most of the blame for the rising prices.
The bill also cuts about $1 trillion from Medicaid and other safety net programs. This will force hospitals in rural areas to close, leaving those Trump voters in the countryside with very long drives to receive care. It will kill some of them. If one has an hour to get to a hospital during a heart attack and if one lives 2 hours from such a facility, the arithmetic is clear and depressing.
In addition, it raises the federal debt ceiling by $5 trillion. If the budget brought down the budget deficit as the hard right in the Freedom Caucus claims to want, that would not be necessary. So, they are effectively admitting that this will blow a hole in the budget.
The effects this will have on the economy and the global capital flows are frightening. As the US borrows more, as its bond issuance accelerates, prices for the bonds will drop. Anyone who understands supply and demand realizes this is a fact. When bond prices fall, interest rates rise; that is how the bond market works. Higher interest rates will mean more money has to go to servicing the debt. It is already the largest single item in the accounts of the USA. There is also a point at which the markets are unwillling to purchase more debt. A payments crisis is almost a certainty. When that happens, no one knows how bad things will get.
The US Dollar as the world reserve currency is also at risk. Non-Americans have been happy to accept, hold and spend US dollars for global trade since at least the 1940s. They have done so because the US economy was the most stable in the world, because the US is governed by predictable commercial law and because there was no real competitor.
This big ugly bill will destabilize the US economy (and tariffs will amplify that). The bill will enable the Trump administration to play favorites thus undermining the rule of law. The bill does not create any competitors to the US Dollar, but it gives incentives to investors to consider using the Euro, Yen, Yuan or some crypto-currencies. When the US no longer has the sole power to produce the reserve currency of the global system, it will pay higher interest rates, and inflation will rise.
The best thing that could happen to everyone is for the House to be too divided to pass the new version. The Congress must do something to fund the government. This is not it. Scrapping this monstrosity and starting over is not a matter for embarrassment. Yet, one expects the cowards in the GOP will succumb to the threats and the fear by which the Trump administration operates.
© Copyright 2025 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
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