The Congressional Budget Office warns that the One Big Beautiful Bill Act will increase the federal deficit by $3.8 trillion by 2034. // Stock photo
Republicans and Democrats have been arguing for months about the pros and cons of President Donald Trump’s One Big Beautiful Bill Act (OBBB), signed into law on July 4 after squeaking through Congress. One aspect of the legislation that no one seems to quibble about, except the White House, is its effect on the national debt.
Back in May, the Congressional Budget Office (CBO) predicted that the bill would increase the federal deficit by $3.8 trillion by 2034 due to the decrease in taxes and not enough cuts to the budget to make up the difference.
A chart assembled by the CBO, the Committee for a Responsible Federal Budget, and published by The New York Times shows the federal deficit reaching more than 125 percent of GDP, higher than during World War II. As of today, the National Debt Clock already shows a $37.07 trillion federal deficit, and growing in real time (
usdebtclock.org).
“There is no economist anywhere, without a strong political agenda, who is saying that this bill is a positive for the economy,” said Clinton Administration Treasury Secretary Lawrence Summers last Sunday on ABC’s “This Week.” “And the overwhelming view is that it is probably going to make the economy worse.
“Think about it this way, how long can the world’s greatest debtor remain the world’s greatest power? And this is piling more debt onto the economy than any piece of tax legislation in dollar terms that we have ever had.”
The Trump White House disagrees with the CBO.
“The Crooked Budget Office has a terrible record with its predictions and hasn’t earned the attention the media gives it,” according to a Q&A on the White House website. “The CBO misreads the economic consequences of not extending the Trump Tax Cuts. The One Big Beautiful Bill delivers real savings that will unleash our economy and prevent the largest tax hike in history, resulting in historic prosperity, while lowering the debt burden.”
The administration says the One Big Beautiful Bill actually reduces the debt.
“The One Big Beautiful Bill reduces deficits by over $2 trillion by increasing economic growth and cutting waste, fraud, and abuse across government programs at an unprecedented rate. This legislation delivers historic levels of mandatory savings. President Trump’s pro-growth economic formula will reduce the deficit, increase wages, deliver American jobs, and drive down the cost of living.”
David Seif, Nomura Holding’s chief economist for developed markets, told CNBC that he thinks the OBBB would “almost unquestionably be good for the U.S. economy over the next couple of years compared to passing nothing
“The most important thing OBBB does for the next few years is renew most of those expiring (2017 Trump) tax provisions, preventing a major and sudden fiscal contraction from occurring,” Seif told CNBC. “Provisions of OBBB allowing for faster business expensing of capital investments may raise investment over the next couple of years, though likely at the expense of investment in later years.”
The Washington, D.C.-based Tax Foundation finds both good and bad in the OBBB.
“The House and Senate bills both secure permanent extension of the rates and brackets of the 2017 individual tax cuts, providing certainty for households and stability to the structure of the tax code,” according to the Tax Foundation.
“The Senate bill also permanently extends a larger standard deduction and a modified alternative minimum tax threshold. Both bills permanently extend some of the TCJA’s limits on some itemized deductions, such as for mortgage interest, and limit the value of itemized deductions for top earners. The standard deduction and limitations on itemized deductions have greatly simplified the tax code for millions of taxpayers.”
On the flip side, the bills spend far too much money on political gimmicks and carveouts, the foundation says. They both introduce tax exemptions for overtime pay and tips, a deduction for auto loan interest, and an additional standard deduction available for some seniors, all of which violate basic tax principles of treating taxpayers equally.
“Combined, the four provisions cost more than $350 billion over the four years they are in effect in the Senate version, and the cost would more than double if they are made permanent,” adds the Tax Foundation. “Complicated eligibility restrictions for some new deductions reduce the cost somewhat, but it would be better to not introduce bad ideas in the first place.”
Still, many economists on the record say they agree with the CBO’s assessment of the new law’s effect on the national debt, and the likely ensuing economic fallout, which likely will take effect after the 2026 mid-term election.
“In the out years, (the bill) flips from fiscal expansion to fiscal contraction as the temporary tax cuts expire and as the planned spending cuts ramp up,” Wells Fargo economists Michael Pugliese and Aubrey Woessner told The Wall Street Journal.
Backloading the spending cuts raises the risk that, in the future, Congress will vote not to implement them at all.
“The short-term benefits of the bill must be weighed against the potential for trillion-dollar deficits as far as the eye can see, pushing up interest rates and crowding out private investment,” the WSJ article notes.
Maya MacGuineas, president of the Washington, D.C.-based Committee for a Responsible Federal Budget, opposed the measure.
“Congress has passed the single most expensive, dishonest, and reckless budget reconciliation bill ever — and, it comes amidst an already alarming fiscal situation,” MacGuineas says. “Never before has a piece of legislation been jammed through with such disregard for our fiscal outlook, the budget process, and the impact it will have on the well-being of the country and future generations.
“Our fiscal condition is currently precarious, with debt-to-GDP soaring towards an all-time record, interest costs surging past nearly all other parts of the budget, and the Social Security and Medicare trust funds heading towards insolvency. This bill, which has been described by champions as ‘a start’ toward fiscal sustainability, would in fact make every single one of these problems worse — in some cases, dramatically worse.
“Given our current fiscal condition, lawmakers should be committed to not passing any legislation that makes the situation worse. Instead, demonstrating blatant disregard for the fiscal damage this will do, Congress passed a bill that would add more than $4 trillion to the debt, accelerate the insolvency of Social Security and Medicare, and leave us even more vulnerable to the whims of the Treasury markets.”
The Penn Wharton Budget Model, as reported by the WSJ, estimates that the added debt will crowd out private investment and will leave the U.S. economy 0.3 percent smaller at the end of 2034 than if 2017 tax cuts expired, not larger as the White House claims. That drag grows over time: After 30 years, GDP will be 4.6 percent smaller and wages will be about 3.5 percent lower.
Apart from the OBBB’s critics attacking its effect on the national debt, another of its cons are the cuts to Medicaid with some pundits claiming it will close rural hospitals and cost American lives in the long run.
The Citizens Research Council of Michigan in Livonia, which provides factual, unbiased, and independent information concerning significant issues of state and local government organization, policy, and finance, has released a brief primer on Medicaid in Michigan and the potential impact of pending cuts.
Now with the Big Beautiful Bill passed that enacted a decline in Medicaid spending, states will be left to respond to problems on two related fronts: the impact on people losing care and the impact on those providing care.
The Research Council states it seeks to provide the public with an accessible overview of Medicaid’s role in delivering individual health care coverage and supporting Michigan’s health care system, thereby properly contextualizing the impact of proposed changes to the program.
Cuts to Medicaid will increase the uninsured population by at least 200,000 residents who will be impacted by the effects of delayed care and increased financial hardship.
These problems will have a broader impact on the state budget. Policymakers will face difficult choices as the state is likely to experience a loss of federal Medicaid revenue of at least $2 billion per year, necessitating cuts to the program, reductions elsewhere, or new revenue sources.
“Medicaid has such a large impact on the state, both as a share of the state budget and in terms of how many people have health insurance through the program,” says Eric Lupher, president of the Citizens Research Council of Michigan. “This paper gives people the information they need to understand the debate and prepare for what might happen if the legislation is enacted.”
Medicaid is a joint federal-state program established in 1965 for vulnerable individuals (due to age, disability, etc.) in low-income households who are unable to access health care. The federal government sets parameters for state programs.
It provides matching funds to participating states, allowing them flexibility in designing their own programs. Services covered by Medicaid include primary and acute care, as well as long-term support services.
“As a matter of policy, Medicaid is relatively complicated, so it is not always easy to understand how a change in the law might impact the actual delivery of health care on the ground,” says Karley Abramson, associate for health policy at the Research Council.
“If you are not familiar with how Medicaid eligibility and funding work, you would not necessarily realize how dramatically the proposed legislation could impact people and health care providers in the state.”
Medicaid provides health insurance coverage to a significant portion of Michigan’s residents (23 percent) and is a vital component of the payment mix that health care providers rely on.
Medicaid has taken on a larger role in Michigan over the last two decades, with spikes in enrollment during periods of economic downturns (2009 Great Recession and 2021 COVID-19) and the program’s 2014 expansion under the Affordable Care Act.
For more information, visit
crcmich.org.
