LIVE MARKETS-Gauging the "one big beautiful bill's" potential fiscal effects

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GAUGING THE "ONE BIG BEAUTIFUL BILL'S" POTENTIAL FISCAL EFFECTS

On Thursday, the U.S. House of Representatives passed Donald Trump's massive tax and spending bill, sending it to the Senate for debate. The thousand-page piece of legislation, cheekily called the "One Big Beautiful Bill Act" (OBBBA) is estimated by the nonpartisan Congressional Budget Office to heap an additional $3.8 trillion dollars on top of the United States' ballooning debt, despite the fact that Moody's downgraded U.S. debt just a week ago.

Oxford Economics (OE) has published a research note on the extent to which the bill is likely to affect the budget deficit in the likely eventuality of its passage into law.

Right off the bat, OE's lead U.S. economist Bernard Yaros is quick to say that "(OE will) not rush to adopt the reconciliation bill" to its baseline debt estimate, because "(The) Senate must craft its version."

"Potential opposition to Medicaid cuts and recissions to the Inflation Reduction Act will limit the scope for new tax cuts."

While OE anticipated most of the policy changes in the House bill, their magnitude raised an eyebrow or two.

"The tax cuts included in the bill are much larger than assumed in the baseline, but the cost savings also exceeded our expectations," Yaros says. "Therefore, the overall fiscal impulse under the OBBBA is not much different than our baseline assumptions, at least during the remainder of Trump's second term."

OE calculates that during fiscal years 2026 through 2029, the OBBBA would, on average, increase the deficit by 0.4% per year, on average, relative to current policy, compared to their baseline 0.5% increase.

The chart below, courtesy of OE, outlines the near-term cost and longer-term savings of the OBBBA:

As for the extent to which the Senate version of the OBBBA will differ from the House version, Yaros believes Senate Republicans will probably seek to make many of the policy changes permanent, and "the cuts to Medicaid and the IRA's provisions will likely not be palatable to Senate Republicans, and if these pay-fors are reduced, that will limit the scope for new tax cuts to be included in the final package."

(Stephen Culp)

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