President Donald Trump successfully arm-wrestled support in the House and Senate to get his signature tax cut and spending bill across the legislative finish line on July 4.

It wasn’t easy. The House only passed the bill initially after blue-state Congressmen successfully increased the State and Local Tax (SALT) Deduction substantially, providing much-hoped-for relief to homeowners in high-tax communities.

The Senate was even more contentious. Some senators recoiled at the bill’s size, forcing steep cuts to energy tax credits and Medicaid. Still, even with those offsets, the bill carries a staggering price tag. Ultimately, the bill squeaked through, with Vice President Vance’s vote resulting in a 51-50 final vote tally.

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That cost captured the attention of longtime Wall Street icon Ray Dalio. 

Dalio founded Bridgewater Associates, a hedge fund now managing more than $112 billion of assets. He’s featured in the popular “Market Wizards” series of books, and his prescient economic and stock market predictions have made him a billionaire worth $16 billion, good enough to rank him 156th on Bloomberg’s Billionaires Index.

Over his 50-year investment career, Dalio has navigated his share of good and bad economic times, and many consider him among the most successful in predicting what could happen next to markets.

Lately, he’s focused on the U.S. debt level as a major crisis looms. Perhaps unsurprisingly, that’s led to him offering a pretty blunt take on the Big Beautiful Bill Act.

One of the biggest features of the law is that it extends tax cuts provided in the Tax Cuts and Jobs Act, which was passed in 2017 during President Trump’s first term in office.

That’s not all it does, though.

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On the campaign trail, President Trump made a series of promises, including more tax breaks for Americans and rolling back much of former President Biden’s green energy initiatives.

The over 900-page One Big Beautiful Bill Act makes good on promises to reduce taxes on Social Security and tips. However, it falls short of entirely removing taxes on them. 

For example, rather than eliminating income taxes on Social Security, the act provides a Social Security bonus deduction by increasing the deduction to $6,000 from $2,000 previously.

Tips are also excluded from Federal income taxes; however, there is a $25,000 deduction limit.

The act also eliminates tax credits for electric vehicles, energy-efficient heating and cooling, and other green energy breaks on solar and wind power.

To reduce the cost of income tax cuts, the One Big Beautiful Bill Act makes steep cuts to Medicaid, including expanding work requirements. It also shifts the cost of SNAP benefits to states with an error rate above 6%.

Those moves have proven highly controversial. The CBO estimates that changes to Medicaid will result in 11.8 million people losing health insurance over the next decade.

Dalio has focused much of his time researching the rise and fall of economies. This research has led him to a worrisome prediction for America.

Specifically, Dalio believes that our substantial and growing debt pile has us on a collision course with an economic Armageddon.

He predicts that as our spending increases, people and governments will balk at buying our debt, causing a spiral that could result in either Treasury debt defaults or restructuring.

Unfortunately, Dalio sees little political will in Washington, D.C., to cut the spending cord, as evidenced by Congress passing the One Big Beautiful Bill.

“After spending time in Washington, D.C., discussing the budget deficit with senior people on both sides of the aisle, it’s clear to me that we are unlikely to change the debt trajectory we’re on and avoid the painful consequences,” wrote Dalio on X.

The toll taken by passing the One Big Beautiful Bill is a stiff one.

The CBO estimates that the bill adds a whopping $7 trillion a year in spending and only generates about $5 trillion in revenue. As a result, debt relative to GDP will surge, adding more pressure to the economy.

“The debt, which is now about 6x of the money taken in, 100 percent of GDP, and about $230,000 per American family, will rise over 10 years to about 7.5x the money taken in, 130 percent of GDP, and $425,000 per family,” noted Dalio. “That will increase interest and principal payments on the debt from about $10 trillion ($1 trillion in interest, $9 trillion in principal) to about $18 trillion (of which $2 trillion is interest payments).”

That’s a lot of money. And Dalio thinks it will require some pretty uncomfortable fixes down the road. 

“[It] will lead to either a big squeezing out (and cutting off) of spending and/or unimaginable tax increases, or a lot of printing and devaluing of money and pushing interest rates to unattractively low levels. This printing and devaluing is not good for those holding bonds as a storehold of wealth, and what’s bad for bonds and U.S. credit markets is bad for everyone,” said Dalio. “Unless this path is soon rectified to bring the budget deficit from roughly 7% of GDP to about 3% by making adjustments to spending, taxes, and interest rates, big, painful disruptions will likely occur.”

The challenge, however, will remain business as usual in D.C. Politicians eager to continue to win elections will continue to make big promises, and cash-strapped Americans can’t be faulted for wanting relief. 

However, kicking the can down the road on our debt may create a bigger problem that will be harder to fix.

“While virtually everyone agrees on the need to address our debt problem in a balanced way that includes tax increases and cuts to benefits, they also agree that they cannot speak up because politics have become absolutist,” wrote Dalio. “We must find a solution around absolutist pledges like, ‘I will not raise taxes,’ or ‘I will not reduce benefits,’ when they are desperately needed.”

Related: Legendary fund manager issues stock market prediction as S&P 500 tests all-time highs

Great Job Todd Campbell & the Team @ TheStreet Source link for sharing this story.

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