The One Big Beautiful Bill Act (OBBBA) is clearly a big taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. cut; in fact, it is the 6th largest since 1940, measured as a share of the economy. It also comes at a time of big, unprecedented, and unsustainable deficits and debt. While lawmakers limited the fiscal cost of the OBBBA by including provisions that reduce spending and boost economic growth, the net effect is higher deficits and debt, putting the federal government in a more dangerous fiscal position sooner.
We estimate the OBBBA reduces taxes by about $5 trillion, or 1.4 percent of GDP, over the next decade (2025-2034). The net cost falls to about $4 trillion after accounting for the bill’s spending reforms. Additionally, we estimate the OBBBA will boost GDP by about 1.2 percent over the long run, primarily by lowering individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source rates and allowing businesses to expense certain investments, generating additional dynamic revenue and reducing the burden of debt and deficits as a share of the economy. Increased economic growth reduces the cost of the bill to about $3 trillion over the next decade. However, added to the cost is about $700 billion in interest payments on debt issued to finance the deficits, resulting in a total deficit increase of nearly $3.8 trillion over the next decade. Publicly held debt under the OBBBA will rise from about 100 percent of GDP this year to about 124 percent in 2034.
While not part of the OBBBA, the Trump administration’s new tariffs announced this year would offset a portion of the OBBBA’s cost and modestly improve the fiscal outlook, assuming they survive legal scrutiny and remain in place. We estimate the new tariffs will bring in about $2.1 trillion in additional revenue over the next decade, conventionally measured, or about $1.6 trillion dynamically (i.e., accounting for reduced economic growth from the tariffs). Thus, slightly more than half of the OBBBA’s fiscal cost will be offset by tariffs, leaving a net increase in deficits of about $1.4 trillion over the next decade. Accounting for about $300 billion in interest on debt issued to finance those deficits brings the combined 10-year deficit increase to nearly $1.8 trillion, causing publicly held debt to rise to about 120 percent of GDP by 2034.
Putting these changes into historical perspective, the charts below show revenue, deficits, and debt as a share of GDP over the last several decades and projected over the next decade according to the Congressional Budget Office’s (CBO) outlook published in January 2025 and according to our modeling of the major fiscal policy changes since then, the OBBBA and tariffs. In January, CBO projected revenue would average about 18 percent of GDP over the next decade, considerably higher than the historical average of 17.3 percent over the preceding six decades (1965 to 2024), reflecting an array of expiring provisions of the Tax Cuts and Jobs Act (TCJA) of 2017, including lower tax rates on individual income and business expensing.
Accounting for enactment of the OBBBA, which permanently extended the bulk of the TCJA’s expiring provisions, we project revenue will drop to an average of about 16.7 percent of GDP over the next decade. Revenue drifts upward over time, reaching about 17 percent of GDP in 2034, due in part to the shifting forward of deductions under the OBBBA’s expensing provisions and the expiration of the OBBBA’s temporary tax cuts on tips, overtime pay, and other items. Assuming Trump’s tariffs remain in place, we estimate revenue will average about 17.1 percent of GDP over the next decade, reaching about 17.5 percent in 2034.
In January, CBO projected extraordinarily high deficits averaging about 5.8 percent of GDP over the next decade—nearly double the 3.3 percent average deficit over the preceding six decades. Interest on the debt comprised roughly two-thirds of the projected deficit, a cost carried forward from several years of deficit-financed spending, as the last surplus occurred in 2001. Deficits reached nearly 10 percent of GDP in 2009 in the depths of the global financial crisis and Great RecessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years., and nearly 15 percent in 2020 during the global pandemic, both of which reduced revenue and led to surges in stimulus and relief spending. Outside of interest, CBO projected the primary deficit would average 2.3 percent of GDP over the next decade, mainly driven by health care and old-age programs growing faster than revenues and the economy.
Under the OBBBA, we estimate deficits will rise to an average of 6.8 percent of GDP over the next decade. Assuming Trump’s tariffs remain in place, we estimate deficits will rise to an average of about 6.3 percent of GDP over the next decade. In all cases, the outlook is unprecedented in that such high deficits have never been sustained over a 10-year period.
In January, CBO projected publicly held debt was on course to reach 106 percent of GDP by 2029, crossing a record high last seen in the aftermath of World War II. CBO’s projection indicated debt would continue rising precipitously to about 117 percent of GDP by 2034. We estimate the OBBBA will accelerate this timetable such that publicly held debt reaches a record high in 2028 and tops 124 percent of GDP in 2034. If Trump’s tariffs remain in place, we estimate publicly held debt will still cross the record high of 106 percent of GDP in 2028 (though later in the year) and continue to grow to more than 120 percent by 2034.
One caveat to these projections is that they do not take into account actual values for fiscal year 2025, which have come in slightly more positive than CBO projected in January. Instead of CBO’s projected 17.1 percent of GDP for revenue in FY 2025, actual revenue was 17.3 percent, reflecting higher revenue from tariffs and individual income taxes partially offset by lower corporate tax revenue, the latter of which CBO attributes to the initial impacts of the OBBBA. Actual spending was also lower than initially projected (23.1 percent of GDP versus 23.3 percent in CBO’s January outlook), which may also be partially attributable to early effects of the OBBBA. Thus, the FY 2025 actual deficit was 5.9 percent of GDP versus a projected 6.2 percent, and actual debt was 99.8 percent of GDP versus a projected 99.9 percent.
Another wildcard is the economy and performance of the stock market, which, thus far in 2025, is exceeding expectations. To the extent that better-than-expected trends continue, revenues could be higher and the burden of the debt lower than expected. CBO’s next outlook, scheduled for release early in 2026, will better account for changes in fiscal and other policies and the economy, though there remains considerable uncertainty around the effects of AI, immigration, and other factors.
Lastly, while we don’t know how policy will change, upcoming deadlines tend to put additional upward pressure on deficits. The Supreme Court is set to rule on Trump’s International Emergency Economic Powers Act (IEEPA) tariffs, potentially requiring a refund of those collections to date and eliminating that as a revenue source going forward. At the end of 2025, enhancements to premium tax credits for health insurance are set to expire, and Congress is contemplating extending them, potentially costing $350 billion or more over the next decade, depending on the proposal. In 2028 and 2029, many of the OBBBA’s tax cuts expire, including deductions for tips, overtime pay, auto loans, and seniors, while other major provisions become less generous, such as the cap on state and local tax deductions. Extending the OBBBA’s expiring provisions would add more than $100 billion to annual deficits.
In sum, the OBBBA accomplished many good things, such as lowering marginal tax rates on a permanent basis to spur economic growth, but it failed to fully offset the fiscal costs, for instance, through bolder reforms to healthcare programs and tax preferences, and introduced new fiscal cliffs that could further add to deficits. Lawmakers should resolve these and other upcoming cliffs with an eye toward fiscal responsibility while building solutions for the long-term drivers of the debt, namely, health care and old-age programs.
For instance, any extension of premium tax credits should come with offsetting cost savings, such as by reducing other healthcare subsidies. The OBBBA’s temporary policies should be evaluated to identify the most pro-growth elements for extension, such as expensing. Convening a bipartisan fiscal commission would be an appropriate forum to build consensus on longer-term solutions. Each of these measures would send important signals to financial markets that the US government is serious about reining in deficits and debt, reducing the risk of a fiscal crisis that could include some combination of high interest rates, high inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin, and jarring policy adjustments.
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