Concerns are growing that President Donald Trump's tax reform plan could place a significant burden on federal finances. As the House barely passed this tax bill, bond yields soared, and the stock market fluctuated.
On the 22nd (local time), the yield on 30-year U.S. Government Bonds surpassed 5.15% during trading, marking its highest level in 20 years. It later dropped slightly to 5.05%, but remains high. This indicates that investors are concerned about the financial soundness of the U.S. government and demand greater compensation for purchasing government bonds.
The House's passage of President Trump's tax reform plan by a vote of 215 to 214 shook investor sentiment. The bill includes provisions to make the tax cuts introduced in 2017 permanent and expand standard deductions. The Congressional Budget Office (CBO) estimates that this measure will increase U.S. federal liabilities by $2.4 trillion over the next 10 years.
As a result, the possibility of rising interest rates for consumer financial products such as mortgages, credit cards, and auto loans has increased. The average interest rate for 30-year fixed-rate home loans is already on the rise at 6.81%.
The rise in long-term interest rates has also put pressure on the stock market. The Standard and Poor's 500 index slightly declined, while the Nasdaq closed with a slight drop. Some investors are worried about trade uncertainties resulting from the 10% blanket tariff plan introduced along with Trump's tax cut.
The Trump administration claims that this tax cut will stimulate economic growth. However, Wall Street is increasingly wary that this tax cut could lead to a greater fiscal deficit than expected due to reductions in import taxes and expansions of child tax credits.
Jerome Powell, Chair of the Federal Reserve, recently warned that "the debt of the United States is on an unsustainable path." In fact, interest payments in the U.S. last year amounted to $881 billion, which is more than defense or Medicare.
The Yale Budget Institute analyzed that if the major provisions of this tax cut are extended, the debt-to-GDP ratio in the U.S. could reach 200% by 2055.
Some predict that political uncertainty could also affect the market, as President Trump describes this legislation as "the most important legislation in American history" and makes it a key part of his re-election strategy.
In response, JPMorgan Asset Management warned that "if tax cuts, high tariffs, and high inflation combine, concerns about stagflation could grow." There are also signs that confidence in U.S. assets is weakening, as foreign investor participation in some government bond auctions has declined.
Wall Street is raising concerns by comparing the current U.S. situation with the past case of former British Prime Minister Liz Truss, who caused market turmoil with unfunded tax cut policies.