OBBB's Potential Economic Impact: A Mixed Bag of Projections

The OBBB aims to boost the economy, primarily by preventing large tax increases that would otherwise occur due to the expiration of the Tax Cuts and Jobs Act (TCJA) provisions. This, in turn, is expected to encourage labor supply and increase GDP.

The Tax Foundation projects that the Senate’s version of the OBBB would lead to a more sustained economic boost in the long run compared to the House version. This is mainly because the Senate bill would make permanent the temporary provisions allowing companies to immediately expense investments in equipment, short-lived assets, and domestic research and development (R&D).

The House bill is estimated to increase long-run GDP by 0.8 percent.
The Senate bill is estimated to increase long-run GDP by 1.1 percent.

Both versions include temporary tax cuts, such as expensing for qualified structures and a new deduction for overtime income, which are expected to stimulate short-run growth. The Tax Foundation estimates the Senate bill would increase GDP by about 1.0 percent on average over the 2025-2034 budget window, leading to a dynamic tax revenue increase of $905 billion. The House bill would have a slightly smaller impact, reducing the bill’s cost by $895 billion.

Other Notable Projections and Their Methodologies

Other organizations have also weighed in with their economic forecasts for the OBBB:

Joint Committee on Taxation (JCT): Their analysis of the House bill (specifically as passed by the House Ways and Means Committee) estimates a 0.4 percent increase in GDP on average over the next decade. They project stronger growth in the first five years, with a decrease in GDP below baseline projections by the third decade. This growth is anticipated to reduce the bill’s cost by $103 billion through increased dynamic tax revenue. JCT’s estimate is an average of three macroeconomic models, which differ in their assumptions about taxpayer expectations, the Federal Reserve’s response, and the extent to which deficit borrowing crowds out private investment.
Congressional Budget Office (CBO): The CBO analyzed the House bill and estimates an average 0.5 percent increase in GDP over the next decade, with the boost front-loaded and peaking at 0.9 percent in 2026. This is attributed to increased aggregate demand resulting from higher household income after taxes and transfers. However, by 2034, the initial positive effects on the capital stock are expected to be offset by increased deficit borrowing crowding out private investment. The CBO also estimates that higher interest rates would lead to increased interest payments on the debt, significantly offsetting the dynamic revenue effect.
Council of Economic Advisors (CEA): In contrast to the more modest projections, the Trump administration’s CEA predicted a substantial economic boom, with GDP increasing by 4.6 to 4.9 percent by 2028 and 2.4 to 2.7 percent by 2034. However, critics argue that many of the CEA’s modeling assumptions tend to overstate the economic impacts, such as not fully accounting for increased marginal tax rates from limitations on itemized deductions and overstating net individual tax cuts by ignoring certain tax hikes and spending reductions. Even with these optimistic growth assumptions, the CEA estimated the OBBB would add $1.1 trillion to deficits over the next decade.
Other Independent Analyses:
- American Enterprise Institute’s Kyle Pomerleau estimates the House bill would increase GDP by 0.6 percent on average over the next decade and by 0.3 percent over the long run, reducing the bill’s cost by $356 billion.
- The Penn Wharton Budget Model (PWBM) estimates the House bill would increase GDP by 0.4 percent by 2034 but decrease hours worked, ultimately increasing the bill’s cost by $411 billion.
- The Budget Lab at Yale (TBL) estimates an initial GDP increase of 0.6 percent by 2027, followed by a 0.1 percent decrease by 2034. Both PWBM and TBL project negative GDP impacts after three decades due to assumptions about monetary policy, bond markets, and interest rates.

Fiscal Concerns and Long-Term Outlook

While there’s a general consensus that the OBBB would boost economic output, most analyses (excluding the CEA’s) also indicate that the package would impose significant fiscal costs, even after accounting for dynamic tax revenue. The CBO, for example, estimates that the House bill would increase publicly held debt as a share of GDP by about 7 percentage points to 124 percent by 2034.

Lawmakers are right to be concerned about the impact on deficits and economic growth. To maximize economic growth and minimize fiscal costs, it’s suggested that the OBBB should prioritize permanent full expensing of capital investment and reduce overall costs by closing tax loopholes and reducing spending.

The administration’s broader economic policies, including tariffs and deregulation, have also been cited as potential factors influencing the overall economic and fiscal landscape. However, comprehensive analyses of these combined effects are still limited, and some claims, such as those regarding tariff revenues, have faced scrutiny for potentially overlooking economic downsides.

What aspects of the “One Big Beautiful Bill” are you most interested in exploring further, given these varied projections?