Our modeling indicates the One Big Beautiful Bill Act (OBBBA) will boost economic growth but increase deficits, leading to record high debt in 2028 that rises to 124 percent of GDP by 2034.
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Policymakers are considering ways to extend the enhancements made to Affordable Care Act premium tax credits that expire at the end of the year, which could cost $350 billion over the next decade. Any expansion of the credits should be offset by reducing other healthcare subsidies or preferences in the tax code, the largest of which is the exclusion for employer-sponsored health insurance (ESI) premiums, estimated to cost more than $5 trillion over the next decade due to reduced income and payroll tax revenue.
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Short FormThe US national debt is on an unprecedented and unsustainable trajectory that will require ever-greater borrowing and larger interest payments on what is borrowed. These interest payments will, in turn, consume a larger part of the budget, and all Americans will pay the price.
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The US fiscal trajectory is on an unsustainable path over the next 35 years, regardless of whether the IEEPA tariffs are struck down or maintained.
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For Congress, work on the One Big Beautiful Bill Act is done. But in state capitols, the work has not yet begun. Many of the tax changes in the federal reconciliation act flow through to state tax codes—automatically in some states, and subject to an update in states’ Internal Revenue Code conformity date in others.
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Lawmakers are right to be concerned about deficits and economic growth. The best path to address those concerns is to ensure OBBB provides permanent full expensing of capital investment, avoids inefficient tax cuts, and offsets remaining revenue losses by closing tax loopholes and reducing spending.
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As lawmakers consider options for budgetary offsets, they should prioritize competitiveness and economic growth, as a heavier corporate tax burden will undermine the core purpose and achievement of the TCJA.
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The Tax Foundation uses and maintains a General Equilibrium Model, known as our Taxes and Growth (TAG) Model to simulate the effects of government tax and spending policies on the economy and on government revenues and budgets.
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The House Budget Committee has released a budget resolution that specifies large reductions in both taxes and spending over the next decade, paving the way to extend the expiring provisions of the Tax Cuts and Jobs Act (TCJA) and potentially cut other taxes.
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The analysis provides key insights into how their models work and the sort of outputs we can expect from their models as part of next year’s tax debate.
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If lawmakers are serious about pro-growth policies and fiscal responsibility, they will need to put policies forward that achieve those goals. Simply adjusting the baseline doesn’t reduce actual deficits in the coming years.
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If Congress allows the Tax Cuts and Jobs Act (TCJA) to expire as scheduled, most aspects of the individual income tax would undergo substantial changes, resulting in more than 62 percent of tax filers experiencing tax increases in 2026.
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CBO data shows that the federal fiscal system—both taxes and direct federal benefits—is getting more progressive and redistributive in 2024.
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If lawmakers are convinced that new revenues must be part of any long-term effort to solve the budget crisis or offset the cost of extending the TCJA, they must choose the least harmful ways of raising new revenues or else risk undermining their efforts by slowing economic growth.
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The Treasury Department recently touted strong business investment in the years following the pandemic-driven recession and pointed to the Biden administration’s industrial policies in the Inflation Reduction Act and CHIPS Act as key drivers.
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As members of Congress prepare to address the expiration of the TCJA, they should appreciate how revenues have evolved since 2017.
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While neither full expiration nor a deficit-financed full extension of the TCJA would be appropriate, lawmakers should consider the incentive effects of whichever tax reform they pursue. Because taxes affect the economy, they also affect the sustainability of debt reduction.
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Creative options including changes in Social Security benefits growth for higher earners and reforms to how Medicare compensates for health services should be on the table, along with broad-based and well-structured tax reforms.
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The CBO projects deficits will be higher than historical levels, largely due to growth in mandatory spending programs While some recent legislation has reduced the deficit, the Inflation Reduction Act is proving to be more expensive than originally promised.
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Lawmakers should simplify the tax code so that taxpayers can understand the laws and the IRS can administer them with minimum cost and frustration.