The “One Big Beautiful Bill Act” (OBBBA): Economic Boost at a Steep Fiscal Cost

The One Big Beautiful Bill Act (OBBBA), the sixth-largest tax cut since 1940, is projected to increase U.S. budget deficits and accelerate the national debt’s trajectory, despite including measures to spur economic growth and reduce spending.

💰 Tax Cuts, Economic Growth, and the Final Bill Cost

The OBBBA is a substantial tax reduction, primarily through permanently extending the bulk of the 2017 Tax Cuts and Jobs Act (TCJA) provisions and lowering individual income tax rates.

• Conventional Tax Cut: The bill reduces taxes by an estimated $5 trillion (1.4% of GDP) over the next decade (2025-2034).

• Net Cost (After Spending Reform): Accounting for included spending reductions, the cost falls to about $4 trillion.

• Dynamic Revenue: Tax Foundation modeling estimates the OBBBA will boost long-run GDP by about 1.2% (via lower individual rates and business expensing), which generates dynamic revenue, bringing the bill’s cost down to about $3 trillion.

• Total Deficit Impact: After adding approximately $700 billion in new interest payments on the debt, the OBBBA increases the deficit by nearly $3.8 trillion over the next decade.

📊 Debt and Deficit Projections: The Accelerating Crisis

The OBBBA significantly worsens the existing forecast for national debt, crossing record highs sooner than anticipated by the Congressional Budget Office (CBO).

Even with the benefit of increased economic growth, the OBBBA puts the U.S. in a more precarious fiscal position, leading to an unprecedented high level of sustained deficits over a 10-year period.

🚢 The Tariff Offset: A Partial Solution

President Trump’s new tariffs, if they survive legal challenges, would offset a significant portion of the OBBBA’s cost:

• Tariff Revenue (Dynamic Estimate): An estimated $1.6 trillion in additional revenue over the decade.

• Net Deficit Increase (OBBBA + Tariffs): $1.4 trillion (before interest) over the decade.

• Total Combined Deficit Increase (Including Interest): Nearly $1.8 trillion.

Accounting for the tariffs helps, but still results in publicly held debt rising to 120% of GDP by 2034.

⚠️ Looming Fiscal Cliffs and Policy Recommendations

The fiscal outlook is complicated by upcoming policy deadlines, which tend to push deficits even higher:

• Tariff Legality: A Supreme Court ruling on the International Emergency Economic Powers Act (IEEPA) tariffs could eliminate this revenue source and potentially require a refund of past collections.

• Health Insurance Tax Credits: Enhancements to premium tax credits are set to expire at the end of 2025, and their extension could cost $350 billion or more.

• OBBBA Provisions Expire (2028-2029): Numerous temporary OBBBA tax cuts (e.g., deductions for tips, overtime, auto loans) expire, adding over $100 billion to annual deficits if extended.

The OBBBA provided pro-growth tax rate reductions but ultimately failed to implement bolder, offsetting reforms to control long-term spending drivers, primarily health care and old-age entitlement programs.

Recommendations for Lawmakers:

1. Prioritize Offsets: Any extension of expiring provisions (like premium tax credits) must be fully paid for with spending cuts or other offsetting cost savings.

2. Evaluate Pro-Growth Policies: Only the most economically beneficial temporary OBBBA provisions, such as full expensing for investments, should be considered for extension.

3. Address Long-Term Drivers: Convene a bipartisan fiscal commission to build consensus on controlling the long-term growth of entitlement spending.

These steps are critical to signal fiscal responsibility, reduce the risk of a potential fiscal crisis (characterized by high interest rates and high inflation), and build solutions for the country’s main drivers of debt.