In the days leading up to the final vote, the CRFB assessed that the measure would add between $3trn and $4trn to the deficit. It includes a smorgasbord of tax cuts whose fiscal effects are only partially offset by other reforms. The tax cuts include Mr Trump’s campaign promises to remove tax on tips and overtime pay. In theory those are temporary and will elapse when Mr Trump leaves office. In practice, once taxes are cut they often stay cut (as Republicans’ new accounting method implies). The bill would also set up “Trump accounts” for newborns, including one-off payments to new parents for the next three years. It would give big boosts to spending by the Department of Defence and to Immigration and Customs Enforcement, which the administration wants so that it can increase the number of people deported from America.
Modelling the effects of any legislation on economic growth is hard. But the tax cuts should provide a small boost in the short term. That might help to explain the current exuberance of the stockmarkets. Over a longer timeframe the picture is different (see chart 3). The House’s original bill would shrink America’s GDP by 2% by 2050, according to the Budget Lab at Yale, a research centre. That mainly reflects the impact of a bigger debt load leading to higher interest rates, which squeeze the private sector. Some other forecasters are more optimistic, thinking that the tax cuts will push more workers into the jobs market and incentivise investment, offsetting that impact.
America’s debt surged after the financial crisis of 2007–09 and the covid-19 pandemic. The ratio of debt to GDP is already close to the level reached after the second world war. By extending tax cuts that were set to lapse, without offsetting savings, the OBBB will drive it higher still. According to the CRFB, the Senate’s version as of June 30th would push debt to between 125% and 130% of GDP by 2034—well above the 117% forecast if the 2017 tax cuts were allowed to expire, and higher even than the 124% expected under the House bill….
America’s Senate has passed the most consequential legislation of Donald Trump’s second term. Here are ten charts to show what impact it could have on the country https://t.co/umZDPjYugs
— The Economist (@TheEconomist) July 1, 2025
