Three ways the big budget bill fails Americans

In the first hours of July, the US Senate passed the One Big Beautiful Bill Act (henceforth OBBB). The legislation’s title, as well as its contents, are deeply misleading. While the legislation is important in both magnitude and consequence, it is fundamentally a hodgepodge of bad ideas that has managed to unite the tax expert community, both right and left, in opposition.

Let’s focus on the three biggest failures of the bill: It adds substantially to the federal debt, it raises costs for many households, and it weakens important international collaborative efforts.

Failure 1: OBBB raises the US federal debt

First, the bill adds trillions of dollars to deficits and debt, increasing US macroeconomic fragility. Senate Republicans attempted to “disappear” the full costs of extending provisions of the 2017 Tax Cuts and Jobs Act by bypassing normal parliamentary procedure to adopt a hybrid baseline, one that ignores the costs of extending past policies, yet also supposes that new temporary policies remain temporary. This farce, itself a troubling departure from budgeting norms, didn’t ultimately hide the truth, as noted by Congress’s Joint Committee on Taxation, the Congressional Budget Office (CBO), and a number of outside groups that are carefully tracking the deficit and debt impacts. According to the CBO, the bill will generate more than $3 trillion in new deficits over 10 years; accounting for the additional interest costs of the deficit-financed shortfalls brings the total to about $4 trillion.

Further, the tax cuts are front-loaded while the spending cuts are back-loaded. If Congress decides to be more generous in the future by extending temporary tax cuts and withdrawing future spending cuts, as indeed seems likely, the deficit and debt situation will deteriorate further, potentially raising the debt-to-GDP ratio in 2034 from 117 percent under current law to 130 percent, an increase of about 13 percentage points. Between the procedural denial, the fiscal profligacy, and the prospect of more fiscal cliffs as early as 2028, bond markets could easily react to this picture by pricing in additional US fiscal risks, raising interest costs for both the US government and US households.

What are the costs of this budget-busting for the typical household? First, since government interest costs are rising because of higher debt and upward pressure on interest rates, more taxpayer dollars will go toward paying interest rather than providing useful government services. Second, since many households use debt to finance important purchases (mortgages, higher education, and car loans), higher interest costs will take a direct bite out of households’ resources, potentially raising typical mortgage costs by over $1,000 annually. Third, since the federal budget is overextending its borrowing during a time of relative peace and prosperity, that leaves less fiscal space to handle new emergencies, recessions, or other key fiscal priorities.

Failure 2: OBBB raises costs for many households

A second major flaw in the OBBB legislation is its impact on households across the income distribution. The president’s existing tariffs (which may rise or fall in the future) already imply tax increases that outweigh the tax cuts from the OBBB legislation for 80 percent of US households; only the top 10 percent of households benefit on net. Further, the OBBB raises costs for many households, reducing the affordability of health insurance through cuts in Medicaid (risking the health insurance of millions of Americans), reducing food assistance, and raising energy costs by gutting clean energy tax breaks.

Distributional tables alone do not tell us whether a bill is good policy. Still, in this moment, both Democrats and Republicans appear to acknowledge that many middle-class Americans are struggling; the recent spurt of inflation during 2021–23 only compounded these worries.  The OBBB’s fiscal priorities make a mockery of the policy goal of helping struggling Americans. Additionally, the president’s tariff agenda is more likely to lead to economic disruption and hardship than a revitalized US manufacturing sector, as discussed elsewhere.

Failure 3: OBBB weakens important international collaborative efforts

The third fundamental failure of OBBB is the complete abandonment of US international cooperative efforts on global collective action problems. There were some late-breaking improvements in the bill—including the withdrawal of a proposed “revenge tax” that would have hit foreign investment, and the lower tax rate (1 percent instead of 3.5 or 5 percent) on remittances—but the overall impact of the bill on international cooperative efforts is still harmful. First, the bill dramatically cuts US climate investments, while bizarrely subsidizing the use of coal. Alongside Trump administration regulatory rollbacks and surging use of energy use due to artificial intelligence (AI), US greenhouse emissions reduction efforts are deteriorating markedly, departing even further from US Paris Agreement commitments. (The United States government has also withdrawn again from the Paris Agreement, effective 2026.)

The OBBB also weakens international tax cooperation. The net international tax cuts in the legislation total about $165 billion, further reducing constraints on US corporate offshore profit shifting. Further, the removal of the proposed Section 899 tax on foreign investment (sometimes referred to as the “revenge” tax as it targets partner countries with particular tax instruments) was contingent on an agreement with other G7 countries that weakens international tax cooperation more broadly. The agreement intends to create a dual track system, giving US multinational companies more favorable rules than those of firms based in other countries. Whether this compromise is accepted by the larger international community is less clear, but it is a clear step backward for international tax cooperation.

While lower tax burdens on US multinational corporations may sound like good deal for US shareholders, it is highly problematic for governments attempting to build fairer tax systems that can reach mobile international capital income (often untaxed at the individual level). The international tax agreement built on decades of work aimed at ensuring that mobile multinational income would be taxed at some minimum level (15 percent); as discussed elsewhere, building fairer tax systems is an important part of structuring globalization so that it can work for ordinary citizens.

There are other concerning features of the legislation, too many to recount here. But the three outlined above are especially problematic. The abandonment of fiscal responsibility in the OBBB creates additional macroeconomic fragility by exerting upward pressure on interest rates, risking higher risk premia in global markets for US debt, and further weakening perceptions of US macroeconomic stability. The regressive changes in tax policy—both tariffs and the OBBB—leave the vast majority of Americans worse off, a policy agenda at odds with genuine concern for those Americans who are struggling financially. Finally, the retreat from global collective action problems (both climate change and international tax cooperation) is unfortunately part of a larger pattern of declining US leadership, a pattern that includes indiscriminate trade wars with nearly every partner, cutting off US foreign aid to some of the world’s most vulnerable people, and withdrawing from collaborative efforts on public health and scientific research.