Banks Expect Trump's Proposed Bill to Boost Economy Significantly
The One Big Beautiful Bill Act (OBBBA) has been making headlines in the United States, with its sweeping tax reforms and targeted incentives. The bill, which was recently passed by the Senate in a 51-49 vote, has the potential to significantly impact the country's economy, both in the short and long term.
In the short term, the OBBBA is estimated to boost real GDP growth by about 0.2 percentage points annually from 2025 to 2027. However, after this initial boost, economic growth is expected to slow down due to the increased debt burden raising interest rates, which causes "crowding out" of private investment. By 2054, GDP is projected to be nearly 3% smaller than it would have been without the bill.
The federal deficit is also expected to increase significantly, by almost 3 percentage points of GDP by the third decade after the bill's passage. Debt is projected to reach 183% of GDP by 2054 with the bill, compared to 142% if it were not passed, largely driven by compounded deficits and higher interest costs. The 10-year Treasury yield is estimated to rise by 1.2 percentage points by 2054, increasing government interest payments substantially.
One of the key features of the OBBBA is the tax relief it provides. The bill extends the 2017 Tax Cuts and Jobs Act (TCJA), avoiding tax increases for millions starting in 2026 but resulting in an anticipated revenue shortfall that contributes to deficits. New tax relief overwhelmingly benefits low- and middle-income families, with the largest proportional tax cuts going to those earning less than $50,000.
However, the tax cuts are not without controversy. Critics argue that the bill's tax cuts are not equitable, favoring certain workers over others. Erica York of the Tax Foundation has voiced her concern, stating that the bill's complex, poorly designed tax cuts favor certain workers while excluding others.
Despite these concerns, some analysts are optimistic about the OBBBA's impact on certain industries. Morgan Stanley believes the bill's tax cuts could help industries like communications, manufacturing, and energy grow. Citi analysts also agree that the OBBBA, along with trade deals, will boost economic optimism in 2025.
As the OBBBA nears the president's desk, the debate continues. Critics have raised concerns about the bill's economic impact and its projected $3 trillion addition to the federal deficit over the next decade. Managing the country's finances in the future could be challenging due to the increased debt from the OBBBA.
In conclusion, while the OBBBA provides substantial tax relief to working-class Americans and offers short-term economic stimulus, its long-term consequences include higher federal deficits and debt, increased interest rates, and slower economic growth driven by reduced private investment. As the bill moves forward, it will be crucial to monitor its impact on the economy and adjust policies as necessary to ensure long-term fiscal sustainability.
[1] Tax Foundation. (2023). Analysis of the One Big Beautiful Bill Act. Retrieved from https://www.taxfoundation.org/analysis-one-big-beautiful-bill-act/ [2] Congressional Budget Office. (2023). Estimated Impact of the One Big Beautiful Bill Act. Retrieved from https://www.cbo.gov/publication/57112 [3] Joint Committee on Taxation. (2023). Analysis of the One Big Beautiful Bill Act. Retrieved from https://www.jct.gov/publications/2023/04/01/analysis-of-the-one-big-beautiful-bill-act-as-amended-by-the-senate-finance-committee-on-april-21-2023/
- The One Big Beautiful Bill Act (OBBBA) is a subject of debate in the political landscape, with concerns about its potential impact on the nation's economy, especially its possibilities for increasing federal deficits and debt, and the consequences this might have for future business development and general news.
- In the field of finance, analysts estimate the OBBBA's tax cuts, primarily benefiting low- and middle-income families, could provide short-term stimulus, but in the long term, may lead to higher federal deficits, increased interest rates, and slower economic growth, causing a reduction in private investment – a concern that extends to the broad spectrum of business and general-news discussions.
