Newscasts - Trump’s budget bill scars
10/07/2025 11:43
Click the following link to watch video: https://share.newscasts.refinitiv.com/link?entryId=1_a7jsigsb&referenceId=1_a7jsigsb&pageId=Newscasts Source: 'Reuters - Business videos' Description: The budget law passed by the president’s Republicans may add $3 trln of debt while cutting healthcare and green energy. In this Viewsroom debate, Breakingviews columnists discuss the consequences for global firms which banked on a US boom. Short Link: https://refini.tv/4kyHX0d Video Transcript: The views expressed on this podcast are those of the participants, not of Reuters News. So, this is really a wealth transfer from poorer Americans to richer Americans, and it blows up deficits, it doesn't do much for growth, and that's why it's a fairly ugly piece of legislation. This week's episode is all about Donald Trump's Big Beautiful Bill. As with his first term in office, the President has put his full weight behind dragging a gigantic tax-cut bill across the line. But there's plenty more in there, enough to ensure that Trump has already made more of a legislative mark. Yes, this bill, signed by the President after half-hearted rebellions among the Republican Party in both chambers of Congress is going to affect private equity, healthcare companies, firms fueling the energy transition, and on both sides of the Atlantic. So, stay tuned for this week's Viewsroom. It's Aimee. And it's Jonathan, and we are back for another episode of the Viewsroom, your weekly podcast where Breakingviews columnists discuss the knottiest issues in business, economics, and finance. I think Trump's tax and spending bill is most certainly knotty. First off, given some pretty memorable defeats he's suffered, Jonathan, was this was this on your bingo card of all the things you'd expect in a Big Beautiful Bill from Donald Trump? Definitely. I mean look, I think successive presidents have learned that piecemeal legislative approaches premised on taking on one issue at a time just don't really work in the modern day Congress, especially in the US, you have two chambers of Congress, a lot of folks in the lower chamber, the House of Representatives, 100 people in the Senate, which is the upper chamber, and it has all these Byzantine rules that can be used to stymie even efforts enjoying tremendous popular support. And it's not really clear that this bill has that support, like polling looks fairly negative right now that requires a grain of salt, you often see that after big bills move through. And I think people in many corners are only just waking up to the kind of vastness of what this legislation encompasses. So, fortunately, we have our sherpas through that. Gabriel Rubin, our Washington DC correspondent, and Yawen Chen, who has been looking at how it will impact European companies, are here to walk us through the finer points. Yawen, Gabe, you are very welcome. Good to be here. Thanks for having us. Gabe, am I right in saying that as with, kind of as I was saying, so many ambitious agenda-setting bills that various presidents have looked to push, this one's greatest challenge was getting through the Senate, right? Yes, definitely. The Republicans have pretty narrow margins in both chambers, but the Senate, because of its really Byzantine and crazy rules that have been developed over many decades and many different party changes, really require careful legislating and throwing out certain things that don't comply with careful budget rules. So, once they got the bill through the Senate, it wasn't smooth sailing, but victory was in sight for the President. Got it. And when we got to that point, right, when the Beautiful Bill passed the Senate, you wrote a piece declaring its name effectively a misnomer, right? Can you walk us through why you think that? Yes, it's pretty ugly. This is a pretty ugly piece of legislation. It's not beautiful, Gabe? I'm shocked. It is not so beautiful in many different ways. Let's tick through a couple of those, and then we'll go into more detail after that. Basically, it blows up budget deficits. Republicans used a very sort of controversial type of budget math, where they assume the baseline was basically continuing these huge tax cuts that were passed during Trump's first term. So, this is going to blow up budget deficits. It's going to add several trillion dollars of debt over the next 10 years. And it essentially is paying for large-scale tax cuts by cutting social service programs, mainly Medicaid, which is the insurance program for lower-income Americans, and also cutting food stamps, or SNAP programs, which of course are nutritional benefits for lower-income Americans. So, this is really a wealth transfer from poorer Americans to richer Americans, and it blows up deficits, it doesn't do much for growth, and that's why it's a fairly ugly piece of legislation. And so, I suppose what we want to do is- because I think people probably, if you were reading sort of the mainstream news, you probably have a fairly good idea of exactly what you were talking about there. And I suppose at Breakingviews, what we've been trying to do is kind of hone in on some of the sectors that are either going to lose or win as a result of this. And I think one interesting area maybe to begin with is, as you talk about, green energy, right? So, under president Biden, we saw this pretty massive effort to prop up US green industry. That even went beyond the US's borders in terms of other European companies who did very, very well out of that. So how much of that has been undone by this by this bill? Yes, a lot. So, some context, president Biden, during his term, successfully got through a climate bill known as the "Inflation Reduction Act". It also had many pharmaceutical components in there. But the core of the bill was production and investment tax credits for solar and wind energy, as well as more untested or more nascent technologies like carbon capture, as well as money for battery plants, et cetera, really to push the green transition forward with a massive industrial policy bill. This piece of legislation just passed by Republicans in Congress and signed by Trump gets rid of nearly all of that. Obviously, many of the credits that have already gone out, those are largely safe. But for new green projects, especially for solar and wind projects that have not yet gotten off the ground, and for new technologies that have really not been developed yet or are still too expensive, as well as electric vehicle consumer credits, those are all out. They phase out at different times, but mostly in the next couple of years, those massive tax credits that were meant to make the US a renewable energy powerhouse are being scaled down or gotten rid of altogether in order to fund these larger tax cuts and make some things easier for oil and gas companies as well. And is that, are you seeing that get played out in like valuations? Like, is this like being seen as like a blank check for like Exxon, for example? Yes. I mean, largely it's- if you look at the renewable energy companies, I mean renewable energy companies view this as apocalyptic, especially for, for instance, solar developers that are based in the US, because they also took out a provision that would have limited imports from China, which would have posed some issues to other parts the renewable energy industry. But basically, developing a solar industry, developing a battery industry in the US is going to be significantly harder without these credits. And car companies are going to see it in terms of the loss of electric vehicle credits and purchases of those cars. So, this is a big hit to any company that was counting on those credits. And, Yawen, can I pull you in here, because some of the companies were counting on these credits, right? Well, European companies, there was a big green energy push coming from Europe. You obviously have an industrial base there that had a head start, given that Europe has had a kind of more climate-forward policy for a while. I mean, do they have a Plan B? Was the US supposed to be like the great growth frontier and now they're kind of in trouble, or-? Pretty much. I mean, I think the US, because of its huge electricity demand growth, you know, coming out of AI, being a leader and you have all these data centers are going to be built, I think there was a lot of bets on, you know, the US really needs cheap energy, and renewables provide the cheapest energy once they're built. So, you've seen companies like Orsted, this Danish offshore wind developer. They had- I remember back in 2023, at their capital markets day, they were investing, I think, up to $75 billion globally to 2030, and about 40% of that was going to go to the US. And then, of course things happen- I feel like it's crazy huge in the context of a Danish company, right? That's like, just absolutely massive. Yes. But I think offshore wind is also like one of the things that's- if you want to scale, that's the technology you want go for, because you can just build on the sea. And I think under the IRA, because of all those credits that was being offered to these companies, whose projects require a lot of upfront investment, right, and I think those credits usually cover about 30% of the capex. So, if you are doing your economic return calculation, which is usually a few hundred basis points above their cost of capital, you really need those credits to make sure that you can convince your investors. I had no idea the margin was that thin, even like after the credits, that's crazy. It's kind of funny though, because I feel like Europe kind of got hit coming and going in a certain way. I remember when the Inflation Reduction Act first passed, there was a lot of consternation among European politicians saying, like, you know, this is effectively like a trade broadside against us, like the US is trying to effectively steal a march on green industry. And now that the IRA is going away, it's a massive hit to European energy companies. Is it just like they got like sucked into like a kind of catch-22, like "damned if they do, damned if they don't" sort of situation? Yes, there's a big question about is the US still investable, right? Now, I think kind of anchoring what Gabe was saying here, the new projects are really where the big question mark is. Because I think the current- well, law that's passed is not the worst-case scenario for the existing projects. They still have like a 12-month window. They can try to rush off on those projects and they can still qualify under a four-year safe harbor rule. But the question is what happens after next year, right? Where do you deploy that capital? And I think a lot of their- And that's- Yes, sorry. Oh no, Yawen, I was just going to ask, like, that's the question that was on my mind as you were talking. It's like, what's the plan B? Jonathan's question was very much what I was thinking, is that, in a way you'd almost have like whiplash as a company thinking about the US in recent years, right. So, you've got this IRA, massive investment in green energy, then a complete reversal under Trump. I mean, would you be looking for a more like stable market, a more stable investment if you were one of these companies? Yes, you would have thought like going back to your home market, like Europe would be a kind of alternative because they still have a lot of green commitments. They- most importantly, I think they want to wean off imported energy, like those from Russia, sometimes from the US, as you could see from during the Iran attack, the US LNG was being diverted away from Europe. So, you have this dependence issue that you need to address. And if you can build up renewable energy, which you already have a natural advantage at home, you can massively solve that problem. And don't forget power prices in Europe is about three times as expensive as in the US. If you want to be competitive, you also want to build out as much cheaper energy as possible. Absolutely. And so, as we shift away from green energy, maybe to a winner, maybe to the wealth transfer that Gabe was talking about. So, Jonathan, I need you to play half guest, half host, because I know that this is an area you look at very closely, which is private equity. Trump handed them essentially a kind of gift, right, in the fact that carried interest was once again spared. So why was that? This is just the tax loophole that doesn't die. So effectively the carried interest loophole is, you know, sort of an advantageous tax treatment where stuff that kind of looks like income gets effectively treated as cap gains. Like it's one of those things that every president has really talked about, at least since I was paying attention back in the days of Obama. I don't know, Gabe, like you can correct me if I'm wrong here, like has it always just been a thing kicking around or- I think capital gains tax- it comes up in every- closing these loopholes comes up in every single tax negotiation and is rejected every single time. That's the thing, it's supposed to be like the broaden the base, lower the rates thing, it's just that the base part never really happens. So yes, I mean, look, it's perhaps unsurprising it got spared again, it got spared in the last Congress because of a sort of rebellion by one specific senator in the Democratic Party, again the US Senate kind of standing in the way of these sort of changes. So, it's, yes, effectively this thing just seems to be a zombie, everybody agrees that it's unpleasant to have it around, but it marches on, nonetheless. But it's funny though, I mean, I don't know if you could, there's not too many like outright winners here, right? Because even some of the industries, like the private equity industry, like key customers, so think universities, endowment trusts, like all of those things, they're being pressured by new taxes. So, what do buyout players really think of this bill? So, in one way they've been spared, and in another way, pressure is being applied just sort of indirectly. It's interesting because, so what ended up happening to endowments, and this is all sort of an outgrowth of the Trump Administration's war on the Ivy League and like the top end of colleges, which I think they kind of see as an incubator of effectively like left-wing political thought or what have you, they threatened to go like very large here and put like a huge excise tax on profits from investing university endowments, which previously had gotten a much more favorable treatment. They are getting an additional tax put on, it's much less severe than I think was originally feared. So, there will be an impact, it's on the margins. One interesting thing was somebody was mentioning to me a few weeks ago was, you know, these are folks who, their tax treatment was uniquely compatible with, say, big multi-manager hedge funds, like the Millenniums, et cetera, of the world, who do like a lot of trades all the time. And the, you know, they were like a really, really great customer there. So, like not clear maybe necessarily what's, what the impact of that is going to be. But then also for like private equity itself, you've seen, I think beyond just the tax changes in this bill, the whipsawing with federal funding for colleges, the general antagonism towards colleges, has forced them to pull down on investments, which means they need- sorry, pull down on endowments, which means they need to sell investments, which means selling private equity stakes, which means putting less money back into the industry. So, like, a lot of it ricochets around. As to whether anybody is going to lose their mind over this, I don't know, there are always people waiting to pick those things up as the other side of a trade, right? Like you have a secondary market for private equity fund stakes, and there are much bigger prizes that people have their eyes on, e.g. do regulators become more amenable to mergers and kind of serial acquirers? Do we get far greater access for the private equity industry to people's pension savings, e.g. like, do you begin to get to a point where I could take my Thomson Reuters 401(k) and put it into a Blackstone buyout fund? So, like, there are some really, really like, big prizes that they have their eyes on. Ultimately, I think probably it nets out to folks who still feel like they can do business with this Administration and that they're getting something out of it. But yes, it's definitely, definitely on the margins a hit. Yes, and then that takes us to healthcare. So, Gabe, again, like, just that sort of the broad headlines are that healthcare- that obviously a lot of healthcare has been taken away from some of the poorer people. How are the kind of healthcare companies reacting to this? So, what exactly, I suppose, maybe to start, is going on when it comes to the actual companies that are providing this, whether it's insurance or healthcare more generally? Yes, so essentially what happens in this law is that the amount that the federal government spends on Medicaid drops and puts more of that responsibility onto the states. But the states don't have that money, so the end result is a cut. The end result was a cut in the services that are provided. And Medicaid, especially in rural areas, not just rural areas, by any means, upwards of 70 million people are on Medicaid, but in rural areas especially, poorer rural areas' hospitals are going to close, hospitals that have already closed that people might have hoped might reopen will stay closed, the quality of care will change, and there might be buyout opportunities for privatization of certain institutions. What you essentially have is a loss of care in all of these areas that is administered by health insurance companies and hospital owners. So, without all of these federal funds going into the healthcare system, that's going to lead to a lot of lost business for really the entirety of the healthcare sector. And big companies that are essentially serving as government contractors, UnitedHealthcare, Elevance, health insurers such as those, are going to feel the hit from this for sure. And, Jonathan, can you see that yet? Can you see what investors are sort of picturing into the distance as to what happens to those companies? Oh, totally. I mean, well, I feel like the problem is what's already going wrong. So, our colleague Rob Cyran wrote a great piece about some of the healthcare stocks, including UnitedHealth and some others that are big titans of the US healthcare industry, right? And they are sinking like stones because already costs, which had been sort of flatlining for a while, are going back up again. People are sicker than they anticipated in various government-run programs. Like the whole thing is beginning to feel like it's unraveling somewhat already. And then on top of that you've got all of this, this new stuff coming out the pipe which is, like- it's interesting and I kind of want to step back for a second on it because it feels like what we're going through is a great unwinding of some of the things that happened in the past decade, decade and a half. You look at- and, Gabe, like, tell me if this is a fair summation of it, the Trump- the first Trump administration tried to repeal the Affordable Care Act, the kind of landmark health legislation passed by Barack Obama. This time, they're effectively like defunding big bits of it, right? Yes, they definitely are. They're defund- I mean, Obamacare- the passage of Obamacare resulted over many years as states expanded Medicaid, resulted in upwards of 20 million people getting insurance, right? The uninsured ranks declined by that number. In this case, over 10 years, the projections are something between 11 million and 16 million people will lose their health insurance. So, we're really going in the opposite direction of a gap that was closing under the Affordable Care Act, Obamacare, and we're going back in the other direction. Right. So that's, like you're saying, a decade plus of gains that get kind of wiped out there in terms of healthcare reform in the United States. And, Yawen, I wonder this for Europe because if we're seeing this sort of revanchist pullback on policy areas that we had thought like, we're consolidating gains after all these years of trying for so long, it seems like climate is maybe one of those areas where you do see some sort of backlash politics growing, at least in the US, and from what I gather, in some other countries as well. Do you think there is the potential for any kind of similar political situation evolving around the green economy in Europe, or is it just like a totally different political settlement over there? I think the backlash on climate and green transition has happened for some time now. But the US bill really- I mean, similar to that in the US, right. And in Europe, like I said, the discussion about energy security puts renewables and green transitions still at the front and center of policy. But at the same time, you've got businesses manufacturing in Europe, trying to protest against various rules that Europe is deliberating or trying to kind of curb their emissions and making their production more expensive. And the other thing is if you want more growth, economic growth- sorry, if you want more renewable capacity, you also need more demand for economic growth. Like you need more AI, more data centers. But Europe, at the same time, it's also handicapped by some of the red tape. You don't have, you know, modern grids, all these things that's kind of limiting your, your potential- your kind of- your way to live up to that potential in renewables and transition. And all these European companies, some of them are really burned by the US ambition, like Orsted. They, they have a lot of balance sheet repairs to do. And a lot of them are also burdened with a lot of debt. So, RWE, for example, is a German utility, they're trying to cut down their debt, they're trying to do more payouts. So, you would have thought that maybe naturally Europe could just step up and do more policy support so that they can do more renewable heavy lifting. But in reality, there are a lot of constraints and companies themselves are very cautious at the moment as well. So, countries like the UK, you probably have to do more than you usually would have to kind of attract the kind of green investment that can change the status quo. And, Gabe, I'm just sort of curious, maybe just to wrap up, I mean, is this it for Trump? Is this what he needed to do? Is this all encompassed? Are we kind of one Big Beautiful Bill and done? Or is there more offspring to come from this, do you think? Well, I don't think we're ever done when it comes to Trump. Obviously, as we're recording this, we're in the midst of sort of a resurgence of the trade war, which had, I wouldn't say, gone dormant by any means, but certainly had been slightly on the backburner as the Administration negotiated. So, there's much more to come on trade and sort of reorienting the US's place in the sort of world economic firmament, and sort of trade flows and how those will change throughout the rest of Trump's term. And in terms of legislation, you know, I doubt this will happen. I highly doubt this'll happen, but you have Speaker Mike Johnson, you know the head of the Republicans in the House of Representatives, saying he wants to do two more reconciliation packages, to put out, you now, the rest of Trump's agenda get a lot of sort of, you know, longtime goals of the Republican Party codified into law. Again, I'm highly skeptical that will happen. This was a massive lift and presidents rarely, if ever, get these many bites at the apple. I think this was Trump's big one. But hey, Biden passed multiple major pieces of legislation during his one term in office, so it wouldn't be outside of the realm of possibility, even if I'm a bit skeptical that it'll happen. I guess time will tell. Obviously, I'm sure it will be an orderly and manageable process, whatever happens, that respects the norms of the institutions. Yes, but nonetheless, I think that's a good place to wrap it up. Gabe, Yawen, thank you so much for your time. Thanks for having us. Thank you. Thanks for tuning in. This podcast was produced by Sheryl Pena in New York and Gregory Garner in Toronto. You can listen to a new episode of the Viewsroom every Thursday on the Reuters app or your favorite platform. And don't forget to tune in to our sister podcast, The Big View, every Tuesday, as well as the other great podcasts from the Reuters team. If you liked what you heard, please follow the Viewsroom and let us know what you thought. And check out our views on the biggest stories in business and finance every day at Breakingviews.com and Reuters.com.