What impact will the One Big Beautiful Bill have on the US economy and fiscal policy?

The One Big Beautiful Bill (OBBB) is a comprehensive legislative package that promises significant impacts on the US economy and fiscal policy. Here's a detailed analysis: 1. **Economic Growth Stimulus**: - The bill's proponents argue that it will boost economic growth by providing tax relief, supporting small businesses, and investing in American manufacturing. Citi strategists have noted that the bill's passing could improve growth sentiment, especially with upcoming trade deals and its temporary appeal in averting a fiscal contraction in 2026. - The bill's supporters also claim it will drive a Blue-Collar boom with tax relief for workers and support for small businesses, delivering the largest middle- and working-class tax cut in U.S. history. 2. **Fiscal Deficit and Debt**: - The OBBB is expected to add significantly to the federal deficit, with the Congressional Budget Office projecting an increase in the national debt over the next decade. Critics like Thomas Massie have warned that the bill could tank the U.S. credit rating, potentially leading to financial distress. - The bill's sweeping tax reforms and targeted incentives are forecast to increase the primary deficits by $2.4 trillion over the coming decade, adding $3.0 trillion to the debt including interest. Without offsets, temporary provisions could add $5.0 trillion to the debt including interest. 3. **Inflation and Interest Rates**: - The increased fiscal stimulus could potentially lead to higher inflation, as indicated by the potential rise in interest rates to offset the perceived risk of a larger federal debt. - The bill's supporters argue that the increased economic output would increase dynamic tax revenue and reduce the cost of the bill by $124 billion, potentially leading to a more balanced fiscal policy. 4. **Impact on Specific Sectors**: - The bill includes tax cuts on Social Security income and tips, alongside Medicaid restrictions, which could have significant effects on vulnerable populations. - It also features a new excise tax on investment income from endowments for colleges with more than 3,000 students, which could impact private education funding. In conclusion, the One Big Beautiful Bill is poised to significantly influence the US economy, potentially stimulating growth but at the cost of increased fiscal deficits and debt. The bill's long-term effects on inflation, interest rates, and specific sectors like healthcare and education are also noteworthy. Ultimately, the bill's impact will depend on how these effects are managed and the broader economic conditions at the time of its implementation.