What does the Beautiful Act say, and how does it affect U.S. stocks?

Yesterday, the U.S. House of Representatives passed the controversial "Great America Act" by a vote of 218 to 214. This bill is considered one of the largest tax-cut bills in U.S. history, and its passage is almost certain. However, the bill hides profound implications for the U.S. economy, fiscal policy, and the stock market.

I. Key Information of the Bill

1. Large-Scale Tax Cuts: Widening the Wealth Gap

One of the most striking aspects of the "Great America Act" is its large-scale tax cuts. The bill will increase the standard deduction, lower income tax rates, expand the child tax credit, and double the estate tax exemption. While these measures appear to benefit everyone, in reality, high-income groups earning over $400,000 annually receive about half of the tax-cut benefits, while low-income families earning around $35,000 see an average tax cut of only $150. This approach further exacerbates wealth inequality in the U.S., sparking widespread social debate.

2. Cutting Social Welfare: "Remobilizing" the Low-Income Workforce

The bill plans to cut nearly $1 trillion in Medicaid over the next decade and impose work requirements on low-income, childless adults, mandating they work at least 80 hours per month to qualify for healthcare. Additionally, material assistance for non-U.S. citizens has been eliminated. These measures have been criticized as "robbing the poor to feed the rich," but their core purpose may be to push low-income workers into manufacturing, addressing labor shortages in factories. For example, TSMC faced significant challenges in the U.S. due to a lack of workers willing to work overtime. From this perspective, the bill seems to pave the way for a revival of U.S. manufacturing.

3. Raising the Debt Ceiling: Short-Term Relief and Long-Term Risks

To avoid a potential debt default by the Treasury in mid-August, the bill raises the federal debt ceiling by $5 trillion, pushing the national debt limit to unprecedented levels. While this arrangement temporarily alleviates a short-term crisis, it plants long-term fiscal risks for the U.S. The Congressional Budget Office (CBO) estimates that by 2035, U.S. debt will exceed 118% of GDP, far surpassing current levels. Such high debt levels could trigger a debt crisis and significant dollar volatility if the U.S. economy faces turbulence in the next decade. This is undoubtedly a Sword of Damocles hanging over U.S. financial markets.

4. Increasing Defense Spending: A Feast for the Military-Industrial Complex

Military spending has always been a major part of the U.S. budget, and the "Great America Act" continues this tradition. The bill explicitly allocates an additional $150 billion to defense, focusing on advanced areas like AI and drones. This move not only perpetuates the military-industrial complex's profit model but also highlights the U.S. strategic focus on military technology. However, whether such unlimited military commitments align with long-term U.S. interests remains debatable.

5. AI Regulation Adjustments: Federal Preemption and Transparency

The bill removes the clause prohibiting state-level AI regulation, replacing it with federal preemption. While this means regulation is not as relaxed as initially proposed, federal oversight will improve policy transparency and efficiency. For the AI industry, this avoids fragmented state policies and provides clearer guidance for development.

II. Impact on U.S. Stocks

1. Short-Term Boost: Corporate Profits and Market Confidence

In the short term, the "Great America Act" is clearly bullish for U.S. stocks. Large-scale tax cuts directly enhance corporate profitability, with immediate effects on earnings. Additionally, the bill's passage alleviates fears of a debt default, boosting investor confidence. Thus, the U.S. stock market may see a short-term rally.

2. Long-Term Risks: Debt and Policy Uncertainty

However, the bill poses long-term risks for the U.S. economy. While the debt ceiling increase temporarily resolves default concerns, it also escalates the U.S. debt burden. The CBO projects that by 2035, U.S. debt will exceed 118% of GDP, threatening dollar stability. Moreover, policy uncertainty may periodically resurface, causing market volatility.

III. Sectoral Impact

1. Benefiting Sectors

Defense & Aerospace: The bill's additional $150 billion for defense, especially in AI and drones, directly benefits defense contractors and spurs technological advancements.

Traditional Energy: Unlike Biden's policies, Trump's "Great America Act" cancels EV tax credits, lifts restrictions on traditional energy, and provides subsidies, creating new opportunities for fossil fuel companies.

Finance & Manufacturing: Tax cuts significantly boost profitability for capital-intensive industries like finance and manufacturing, enhancing their market competitiveness.

2. Negative Impact Sectors

Clean Energy: The bill cancels EV tax credits and clean energy subsidies, directly harming the sector. Companies like Tesla may face profit pressures or even structural losses.

Healthcare: Cuts to Medicaid and social welfare will negatively impact healthcare providers, limiting their budget and expansion.

Electric Vehicles: The removal of EV tax credits and carbon credit subsidies severely hurts companies like Tesla. In Q1 2025, Tesla earned $500 million from carbon credits; losing this revenue would significantly dent its profitability.

IV. Future Outlook

The "Great America Act" will profoundly shape the U.S. economy, debt, and financial markets over the next decade. While its passage offers short-term stock market gains, it challenges long-term fiscal sustainability. Future partisan battles will influence the bill's implementation, affecting American lives in varied ways. The conflict between Tesla and Trump may escalate, becoming a market focal point.

This drama has just begun, and the future remains uncertain. Investors must weigh short-term market reactions against long-term policy risks when making decisions.