Disentangling the economic implications of ‘Big Beautiful Bill'
At its core, the bill enacts significant changes to the US tax code, extending and expanding tax cuts for high income individuals and corporations, while scaling back funding for safety-net programs, and re-defining spending priorities. The reforms sparked intense debates over its distributional impact and long-term sustainability. Given the magnitude and span of the OBBB, its macroeconomic implications are substantial in scale, and wide-ranging in scope. In this article, we analyse the main aspects of the OBBB along three key dimensions.
First, the bill is set to have a meaningful expansionary impact on the economy over the next decade. According to estimates by the Congressional Budget Office (CBO), real GDP would increase on average by 0.5% over the 2025-2034 period, relative to a scenario without the implementation of the bill. This is a relevant impact on the economy, considering that average annual economic growth in the US has been 2.2% over the last two decades.
The effects would be largest in the short term, with the bill boosting GDP by 0.9% in 2026. The initial push in economic activity would come to a large extent from an increase in aggregate demand, due to higher disposable income for more prosperous households, and items that incentivize investments. Beyond 2026, lower tax rates will improve the incentives to work, increasing labour participation and working hours and, therefore, promoting growth. Overall, the different growth mechanisms point to a positive and significant boost to economic activity.
Second, the OBBB will substantially increase the US federal deficit and the path of debt in the coming years. The bill includes a battery of measures that will put pressure on public finances, including the extension of tax cuts, reduced corporate tax revenues, and expanded deductions. On the other hand, some spending cuts are included, mainly targeting entitlements and safety-net programs, but are smaller in relative terms. Over the period between 2025 to 2035, the bill would add an estimated USD 4.6 trillion to the deficits. As a result, federal debt is expected to reach close to 128% of GDP by 2034, its historical maximum. This far surpasses the 119% mark reached in 1946, when the country was absorbing the costs of the World War II economy and the immediate post-war recession.
The sizable increase in the volume of US Treasury debt will certainly test the appetite of international markets, leading to a rise in interest rates. The increase in the supply of Treasury instruments will result in a fall in their price, and therefore an increase in yields. The CBO and Yale Budget Laboratory estimate the OBBB will increase interest rates on 10-year Treasury notes by an average 14 to 30 basis points (b.p.) over the period 2025-2034. This increase in debt costs is not negligible, but it is not exceptionally disorderly considering fluctuations in yields that are typically observed on any given year. Although the upward shift in the trend of debt is substantial and raises some long-term sustainability concerns which eventually need to be addressed, it is unlikely that these dynamics will generate major disruptions in financial markets over the next 10 years.
— By QNB Economics
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Al Jazeera
an hour ago
- Al Jazeera
Trump administration moves to nix key finding on greenhouse gas emissions
The United States Environmental Protection Agency (EPA) has announced it plans to revoke a scientific finding on climate change that has served as the basis for key environmental and pollution regulations. In an interview on Tuesday, Lee Zeldin, President Donald Trump's pick to head the EPA, said that the agency would nix the 2009 'endangerment finding' that links emissions from motor vehicles to climate change and negative health impacts. Zeldin added that those who seek to reduce carbon emissions only highlight the negative effects. 'With regard to the endangerment finding, they'll say carbon dioxide is a pollutant and that's the end of it. They'll never acknowledge any type of benefit or need for carbon dioxide,' Zeldin told a right-wing podcast, Ruthless. 'It's important to note, and they don't, how important it is for the planet.' The 'endangerment finding' has been central to the justifications for regulating greenhouse gas emissions, including through vehicle emissions standards. The finding, issued under Democratic President Barack Obama, has become a frequent target of conservative lawmakers and fossil fuel companies, which have sought its repeal. Nevertheless, the 'endangerment finding' has withstood several legal challenges in court. Its revocation would be a continuation of the Trump administration's push to roll back environmental protections and slash regulations in the name of boosting the economy. The news agency Reuters reported last week that the EPA is also planning to scrap all greenhouse gas emissions standards on light-duty, medium-duty and heavy-duty vehicles. In Tuesday's interview, Zeldin likewise positioned the repeal of the 'endangerment finding' as a boon to business. 'There are people who, in the name of climate change, are willing to bankrupt the country,' Zeldin said. 'They created this endangerment finding and then they are able to put all these regulations on vehicles, on airplanes, on stationary sources, to basically regulate out of existence, in many cases, a lot of segments of our economy.' Zeldin also touted the finding's revocation as the 'largest deregulatory action' in US history — and a potentially fatal blow to efforts to curb climate change. 'This has been referred to as basically driving a dagger into the heart of the climate change religion,' Zeldin said. A 2021 study from Harvard University's TH Chan School of Public Health found that a decrease in vehicle emissions helped bring the number of yearly deaths attributed to air pollution down from 27,700 in 2008 to 19,800 in 2017. The researchers credited that decline to a combination of federal regulations and technological improvements. They also noted that, if emissions had remained at the 2008 levels, the number of deaths would have instead risen to 48,200 by 2017. Supporters consider air pollution regulations to be a vital part of the effort to slow climate change and minimise adverse health effects. Trump, however, has defied scientific consensus on climate change and referred to it as a 'hoax'. Instead, he has pushed for the US to ramp up fossil fuel production, considered the primary contributor to climate change. Earlier this month, his energy secretary, Chris Wright, wrote a column for The Economist magazine arguing that climate change is 'not an existential crisis' but a 'byproduct of progress'. 'I am willing to take the modest negative trade-off for this legacy of human advancement,' Wright wrote. The United Nations has estimated that, between 2030 and 2050, climate change would contribute to 250,000 additional deaths per year, from issues related to tropical diseases like malaria, heat stress and food security.
Al Jazeera
2 hours ago
- Al Jazeera
Trump ally Marjorie Taylor Greene decries ‘genocide' in Gaza
Washington, DC – United States Congresswoman Marjorie Taylor Greene, a right-wing ally of US President Donald Trump, has suggested that Israel is committing genocide against Palestinians in Gaza, highlighting a growing schism in the Republican Party. In a social media post this week, Greene condemned the dire situation in Gaza, where an Israeli-imposed hunger crisis has killed more than 120 people. She also criticised her colleague Randy Fine, who has openly celebrated the starvation and bombardment of Palestinians. 'It's the most truthful and easiest thing to say that Oct 7th in Israel was horrific and all hostages must be returned, but so is the genocide, humanitarian crisis, and starvation happening in Gaza,' Greene wrote. Her words echo assessments from leading human rights groups and United Nations experts, describing Israel's actions in Gaza as consistent with genocide. Genocide — defined by the United Nations as 'acts committed with intent to destroy, in whole or in part, a national, ethnical, racial or religious group' — is seen as one of the gravest war crimes. So far, the Israeli military has killed more than 60,000 people and turned most of Gaza into rubble. But only a handful of US lawmakers have accused Israel of genocide, making Greene's comments all the more remarkable. In the US, the legislators most vocal against Israel's war in Gaza have largely represented the political left. Greene, however, is one of the most prominent faces of Trump's right-wing Make America Great Again (MAGA) movement. Still, there has been increasing international pressure to denounce the Israeli blockade on Gaza, which has limited the entry of basic supplies into the territory. In recent days, images of emaciated Palestinian children and evidence of mass hunger in Gaza have sharpened the criticism against Israel in US politics. Last week, Congressman John Garamendi, a Democrat, also suggested that Israel's policies amount to genocide. 'It's impossible to look at the starvation caused by Israel's dangerous and willful failure to enable humanitarian aid and not see a genocide being committed against the people of Palestine,' said Garamendi. The US provides Israel with billions of dollars in military aid, as well as diplomatic backing at international forums. The Trump administration has nevertheless been reluctant to criticise Israel over its atrocities and blockade in Gaza. Amid that anger, Fine — another Trump ally — sparked outrage last week when he appeared to endorse Israel's starvation campaign in Gaza while also dismissing it as 'Muslim terror propaganda'. 'Release the hostages,' he wrote in a social media post earlier this week. 'Until then, starve away.' Fine, who was elected to Congress earlier this year with the endorsement of Trump and the support of the American Israel Public Affairs Committee (AIPAC), has a history of Islamophobic and anti-Palestinian positions. For example, in 2021, when a commenter sent Fine a photo of a dead Palestinian child and asked him how he sleeps at night, Fine offered a glib response: 'Quite well, actually! Thanks for the pic!' In September of last year, he also appeared to praise the killing of Aysenur Ezgi Eygi, a US activist who was fatally shot by the Israeli military in the occupied West Bank. 'Throw rocks, get shot. One less #MuslimTerror ist. #FireAway,' Fine wrote in a social media post at the time. Earlier in July, top Democrats in the House of Representatives called Fine 'unhinged, racist and Islamophobic' over a social media attack on Muslim American Congresswoman Ilhan Omar. Fine had responded to Omar's criticism of Israeli Prime Minister Benjamin Netanyahu's visit to Washington, DC, by saying: 'I'm sure it is difficult to see us welcome the killer of so many of your fellow Muslim terrorists.' But the Republican congressman's recent comments on the starvation in Gaza appear to have gone too far, even for some of Israel's staunchest supporters. The American Jewish Committee (AJC), a pro-Israel advocacy group, slammed Fine's remarks last week. 'Implying that starvation is a legitimate tactic is unacceptable,' AJC wrote in response to Fine's post. 'All those in need of humanitarian aid should receive it promptly and safely. Our leaders must focus less on scoring political points and more on doing their jobs.' For her part, Greene warned that Fine's 'awful statement will actually cause more anti-Semitism'.
Al Jazeera
3 hours ago
- Al Jazeera
US stopover by Taiwan's president cancelled; Trump mulls China trip: Report
Taiwanese President William Lai Ching-te has cancelled a trip to three allies in Central and South America after a planned stopover in the United States was reportedly nixed by his US counterpart, Donald Trump. Lai was preparing to visit Paraguay, Guatemala and Belize in early August, with stopovers planned in New York and Dallas on the first and last leg of the trip, the Financial Times reported on Tuesday. The Taiwanese leader's trip was called off when US officials said they opposed his stop in New York, the newspaper said, citing three people close to the matter. Lai's office had never formally announced his trip to Latin America, but on Monday, it said the president had cancelled all overseas travel to focus on tariff negotiations with the US and a cleanup operation following a typhoon in southern Taiwan. The president of Taiwan cannot officially visit the US, which does not recognise its government. But Taiwanese leaders have made use of 'transit stops' in the US over the years to liaise with top administration officials outside Washington, DC. In 2023, then-Taiwanese President Tsai Ing-wen used a transit stop to visit New York and Los Angeles while Joe Biden was still the US president. Beijing, which claims democratic Taiwan as part of its territory, held military exercises in the Taiwan Strait after Tsai's US stop-off to demonstrate its anger. Trump's reported decision to block Lai's stopover follows news that the US president is angling for a trip to China himself, although he said he does not want a 'summit' with his Chinese counterpart, Xi Jinping. 'The Fake News is reporting that I am SEEKING a 'Summit' with President Xi of China. This is not correct, I am not SEEKING anything! I may go to China, but it would only be at the invitation of President Xi, which has been extended,' Trump wrote on Truth Social late Monday night. Reuters reported that Trump may be aiming to visit China around the time of the Asia-Pacific Economic Cooperation summit in South Korea, which runs from October 31 to November 1. Whether the meeting will take place will depend on the outcome of ongoing trade talks between the US and China to resolve Trump's tariff war launched earlier this year. US and Chinese officials are in Stockholm this week to try to hammer out a tariff agreement before a 'truce' expires on August 12, but they have many issues to discuss, including export controls, which could drag out talks.
