This blog post was corrected on July 25, 2025. The estimated increase in federal debt, including the macrodynamic increase in revenues, is $4.2 trillion (9 percent of GDP) through 2034, not $4.5 trillion (10 percent of GDP).
The Tax Policy Center (TPC) estimates that the 2025 Budget Reconciliation Act, referred to as the One Big Beautiful Bill Act (OBBBA), will increase federal debt by $4.2 trillion, or 9 percent of GDP, by 2034. Debt as a share of output will climb to 126 percent in 2034 under OBBBA, compared to CBO’s January 2025 baseline projection of 117 percent (Figure 1). Those estimates include the act’s revenue and spending policies, macroeconomic effects, and effects of higher deficits and interest rates on the cost of servicing the federal debt.
The act’s budgetary impact is limited because its economic effects are modest. TPC estimates that OBBBA will increase gross domestic product (GDP) by about 0.5 percent, on average, from 2026 through 2034. However, debt and interest rates will also increase, elevating the cost of servicing the federal debt. Nonetheless, despite the increase in debt, the positive effect on output will persist for two decades after 2034.
While the Trump administration has claimed far larger economic gains from OBBBA, other researchers have found similarly modest effects.
OBBBA will boost growth in the short term
In 2026, overall tax revenues will be lower by roughly one and a half percent of GDP under OBBBA than under prior law. Taxes are lower primarily because OBBBA extends the temporary individual provisions of the Tax Cuts and Jobs Act, which were scheduled to expire at the end of the year. Moreover, OBBBA contains additional tax cuts.
Lower taxes generally mean more money in people’s pockets, encouraging more spending. Businesses will seek to meet this higher demand by investing in equipment and hiring workers. Business tax incentives included in the act will also boost investment.
Several factors will temper the economic boost
First, OBBBA disproportionately benefits high-income households, who tend to save rather than spend extra income.
Second, under its usual policies the Federal Reserve will likely maintain higher interest rates to prevent the economy from overheating after the OBBBA’s infusion of cash. Higher rates make borrowing more expensive for businesses and households, discouraging investment and spending. These effects will dampen growth.
Overall, TPC projects that GDP will be higher by about 0.7 percent in 2026 and 0.6 percent in 2027 under OBBBA compared to prior law, mostly due to increased after-tax incomes. Over time, those short-run effects will fade. The economic effects that remain will depend on the act’s impact on incentives that influence how people decide to work, save, invest, or innovate.
Working and saving will be taxed less, boosting output
On net, the economy will grow in response to the OBBBA. The act will lower workers’ marginal tax rates. Employment will then become more financially rewarding and more people will work or work longer hours. Extending the tax cuts will also increase the after-tax return on saving, making saving more attractive. That will increase funds available for investment and lower costs for businesses. Business tax incentives included in OBBBA will further stimulate investment.
But rising federal deficits offset some of OBBBA’s economic boost
Those positive economic effects of OBBBA will be partially offset by the impact of higher deficits. While lower taxes generally encourage work and saving, reduced tax revenue will cause larger deficits and increase federal borrowing, pushing up interest rates. This will “crowd out” private investment, offsetting some of the positive effects of changes in incentives.
Between 2028 and 2034, TPC estimates that the net effect of increased deficits and incentives to work and save will raise GDP by about 0.4 percent on average, mostly due to more investment and more people working (Figure 2). By 2034, GDP will be up 0.5 percent, implying an average increase in the annual growth rate of about .05 percentage points over the decade.
Over the 2035-2054 period, TPC estimates that the net effect of incentives and deficits on investment continue to be positive. Overall, the act will boost output by an average of 0.6 percent over those two decades. That contrasts with TPC’s estimates of the version of the bill passed by the House in June, which found the positive effects would dwindle and become negative within 25 years. Investment incentives were temporary in the House bill, but they are permanent in the enacted version, which offsets the crowding-out effects of higher deficits.
The economic boost will raise federal revenues, slightly offsetting the cost of extension
In the ten years after extension through 2034, economic growth will boost taxable incomes and therefore revenues, offsetting about $267 billion (6 percent) of the $4.5 trillion revenue loss from the act. That’s about 8 percent of the $3.4 trillion cost of the law after spending cuts.
However, as described above, higher debt and higher interest rates will increase debt service costs and reverse the budgetary gains from economic growth.
Overall, OBBBA will modestly boost the economy in the short run, offsetting a small portion of the revenue cost. But the act will worsen the nation’s already daunting long-term budgetary imbalance.
