Written by Haider Saleem
Financial and Political Analyst | LinkedIn / X

On May 22, 2025, President Donald Trump’s flagship tax legislation – dubbed the One Big Beautiful Bill Act – narrowly passed the House of Representatives in a 215–214 vote. It extends many of his first-term tax cuts and adds new relief for working Americans. 

But behind the celebratory headlines lies a sobering reality: the bill could add trillions to the U.S. deficit, and financial markets are already flashing warning signs.

For Muslim investors around the world, this matters not only because the U.S. economy influences global markets, but also because excessive debt, interest-bearing instruments, and financial instability raise ethical and strategic red flags.

In this article, we explore:

1.  What’s in Trump’s new tax bill

2. How the bond and stock markets reacted

3. What this could mean for future inflation, risk, and halal investing

1. What’s in the Tax Bill?

The bill revives and extends much of Trump’s 2017 tax reform. It includes:

·       An increase in the state and local tax (SALT) deduction cap from $10,000 to $40,000.

·       New exemptions for tips and overtime pay.

·       Tax credits for car buyers purchasing U.S.-made vehicles and relief for seniors through raised deduction thresholds.

·       Repeal of most clean energy credits by the end of 2025.

·       A major increase in military and immigration enforcement spending[1].

One of the most controversial elements is that the bill raises the U.S. debt ceiling by $4 trillion – a move designed to avoid a government default later this year. Independent analysts estimate the bill could add $3 trillion to $5 trillion to the national debt over the next decade[6].

It also includes provisions that critics say disproportionately benefit high-income earners while cutting Medicaid and food assistance – policies that could exacerbate inequality[1].

2. Why Did the Bond Market React So Strongly?

Bond yields – which represent the interest the U.S. government pays to borrow money – surged after the bill passed. The yield on 30-year Treasury bonds jumped above 5.1%, its highest since 2023[2].

A key concept here is bond yield. When investors lose confidence in a government’s ability to manage its finances, they demand higher yields to compensate for the risk. This is exactly what happened following:

1. Moody’s downgrade of U.S. debt from AAA status.

2.  A poorly received auction of $16 billion in 20-year Treasury bonds[3][6].

Rising yields have knock-on effects: they increase borrowing costs for everyone, from governments to households and businesses. As yields rise, bond prices fall – meaning existing bondholders lose money, and future debt costs more to service.

(Visual Suggestion: A line chart showing the 30-year U.S. Treasury yield spiking from ~4.8% to above 5.1% during May 2025, overlaid with the House vote date.)

3. What About Stocks?

The U.S. stock market also took a hit. The S&P 500 fell 1.6% on May 21, its sharpest drop in a month, with tech, financials, and real estate sectors leading the decline[4][5].

This may seem surprising. After all, tax cuts often boost corporate profits. But this time, investors were more focused on long-term debt sustainability.

As bond yields rise, equities (stocks) face pressure for two reasons:

1)     Higher yields compete with stocks for investor attention, especially dividend-paying companies.

2)     They reduce the present value of future earnings, a key metric for valuing stocks.

Market watchers now fear continued volatility as budget negotiations continue and borrowing costs remain elevated.

4. Why This Matters for Muslim Investors

Even if you don’t invest directly in U.S. assets, these developments can affect your portfolio –  particularly if you hold:

–          Global equity ETFs with U.S. exposure.

–          Sukuk (Islamic bonds) that must compete with rising Treasury yields.

–          Halal stocks in interest-sensitive sectors like real estate and tech.

Moreover, many companies impacted by this bill may shift financially, affecting their Shariah status over time. This is where consistent halal stock screening becomes essential.

Rising Treasury yields may pressure sukuk returns, especially those with long maturities. Investors seeking stability may explore diversified halal income strategies, including gold, Islamic REITs, or shorter-duration sukuk.

5. Conclusion: Caution Amid Celebration

Trump’s tax bill may win headlines, energize voters, and provide relief to some. But financial markets have responded with skepticism, not celebration. For halal-focused investors, these events highlight the need for ongoing monitoring and portfolio review.

References:

1.  Bloomberg. “Trump Tax Bill Narrowly Passes House, Overcoming Infighting.” 22 May 2025.
2. Bloomberg. “Trump’s Next Hurdle: The Bond Market Hates His ‘Beautiful Bill.’” 22 May 2025.
3. Bloomberg. “Bond Market Warns Trump, Congress on Dangers of Swelling Deficit.” 21 May 2025.
4. Bloomberg. “S&P 500 Dips as Trump’s Tax Bill Narrowly Passes House.” 21 May 2025.
5. The Globe and Mail. “Stocks tumble as bond yields jump on fears about U.S. debt.” 22 May 2025.
6. Financial Times. “US government bonds drop as worries over Trump’s tax bill flare up.” 22 May 2025.

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