TPC estimates that economic growth from the One Big Beautiful Bill Act (OBBBA), as passed by the House, would offset less than 10 percent of its $2.4 trillion net cost (Figure 1). The bill’s policies, macroeconomic effects, and interest costs would increase federal debt by $3.0 trillion, or 7 percent of gross domestic product (GDP), by 2034. Within 25 years, these higher deficits would lead to a decline in GDP.

The budgetary impact of the bill’s economic effects is limited because those effects are modest. TPC estimates that OBBBA would increase gross domestic product (GDP) by about 0.4 percent, on average, from 2026 through 2034. However, in later years, those benefits would fade as growing federal deficits reduce business investment. 

While advocates have claimed far larger economic gains from the bill, the Joint Committee on Taxation (JCT) and other independent researchers have found similarly modest effects.  

OBBBA would boost growth in the short term  

In 2026, overall taxes would be lower by roughly one and a half percent of GDP under OBBBA than under current 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 would seek to meet this higher demand by investing in equipment and hiring workers. Business tax incentives included in the bill would also boost investment.  

Several factors would temper the economic boost 

First, OBBBA disproportionally benefits high-income households, who tend to save rather than spend extra income. 

Second, the Federal Reserve would 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 would dampen growth.  

Overall, TPC projects that GDP would be higher by about 0.6 percent in 2026 and 0.5 percent in 2027 under OBBBA compared to current law, mostly due to increased incomes. Over time, those short-run effects would fade due to higher interest rates, lower investment, and other standard economic responses to those rates. The impact of the bill on incentives that influence how people decide to work, save, invest, or innovate would take over.  

Working and saving would be taxed less, boosting output 

OBBBA would lower workers’ marginal tax rates: Employment would become more financially rewarding, and more people would work or work longer hours. Extending the tax cuts would also make saving more attractive due to higher after-tax returns. That would increase funds available for investment and lower costs for businesses. Business tax incentives included in OBBBA would further stimulate investment, though some of the most powerful incentives are temporary.

But, rising federal deficits would eventually cause OBBBA’s economic boost to decline  

While lower taxes generally encourage work and saving, reduced tax revenue would cause larger deficits and increase federal borrowing, pushing up interest rates. This would “crowd out” private investment and slow economic growth over time, worsening as deficits accumulate. 

OBBBA’s negative impact on deficits falls sharply after 2029 as temporary tax cuts expire and larger spending cuts and tax increases come online. Beyond 2031, however, the bill’s negative impact on deficits again rises. 

Between 2028 and 2034, TPC estimates that the net effect of incentives to work and save and increased deficits would raise GDP by about 0.4 percent on average, mostly due to more investment and more people working (Figure 2). That represents an average increase in the annual growth rate of about .04 percentage points over the decade. 

Within 25 years, however, GDP is projected to decline as higher deficits take a toll.

The longer-run effects of the OBBBA are similar to those of extending TCJA’s expiring provisions, with some key differences. First, OBBBA would have a smaller impact on deficits and debt, due to its tax increases and spending cuts. That implies less crowding out and a larger impact on output. Second, extensions to some investment incentives in OBBBA are temporary, while those from the TCJA extension were assumed to be permanent in TPC’s analysis. That implies less incentive for businesses to invest. Those two effects roughly cancel each other out, resulting in a similar impact on the economy.   

The economic boost would raise federal revenues, slightly offsetting the cost of extension 

In the ten years after extension through 2034, economic growth would boost taxable incomes and offset about $214 billion (6 percent) of the $3.8 trillion revenue loss from the bill. That’s about 9 percent of the $2.4 trillion cost of the bill after spending cuts. 

However, higher debt and higher interest rates would increase debt service costs and more than offset the gains from economic growth. TPC estimates that by 2034, the bill, including both its macroeconomic effects and interest costs, would add $3.0 trillion to the national debt. Debt held by the public as a share of output would climb from 117 percent under current law to 124 percent (Figure 3).

Overall, OBBBA would boost the economy modestly in the short run, offsetting a small portion of the revenue cost. But the bill would worsen the nation’s already daunting long-term budgetary imbalance and eventually reduce output and incomes.

This blog was updated to present debt held by the public, rather than gross debt.