The House Bill is Neither Big Nor Beautiful

Elon Musk says the republican bill can be big or it can be beautiful, but it can't be both. As fate would have it, it's neither.

Millions of Americans recently woke to news that the House of Representatives narrowly (215-214) passed a tax and spending package known as The One, Big, Beautiful Bill Act (OBBBA), moving it one step closer to becoming law. While democrats remain unanimously opposed, most House republicans are enthusiastic about the bill.¹ Sure, members of the SALT Caucus didn’t get as much tax relief as they wanted, and fiscal hawks in the House Freedom Caucus would have liked even deeper spending cuts, but republicans are well on their way to passing a bill that makes good on many of President Trump’s campaign promises.

Since they’re doing this through a process known as budget reconciliation, the bill can pass with simple majorities in both chambers. Republicans don’t need—and won’t get—a single vote from democrats, but they’ll have to stick together with minimal defections in order get the bill through the House and the Senate.

It looks like that won’t happen by the aspirational July 4 deadline sought by President Trump, but it will almost certainly happen sometime this year. As I teach graduate students in my Public Budgeting and Finance course, it’s all about conflict and resolution.

The Senate has no intention of rubber stamping the House version of the OBBBA. It plans to draft its own version, but it will need to resolve conflicts within its own ranks in order to pick up the 51 votes it needs. Senators Ron Johnson (R-Wis.), Rick Scott (R-Fla.) and Mike Lee (R-Utah) have already expressed strong opposition to the House bill, which they say doesn’t do enough to cut spending. They’re complaining about the bill’s price tag and demanding even deeper cuts to programs like Medicaid. Meanwhile, Missouri Senator Josh Hawley (R-Mo.) is pushing back against some of the draconian cuts to Medicaid and SNAP, warning that they will end up hurting millions of Trump’s own voters while handing democrats a fillet knife to sever them in the midterms. Others are worried about cuts to renewable energy and how those cuts will impact investment and employment in their state.

If the senate strays too far from the House version of the bill, new conflicts will erupt and the process will drag into the summer, maybe even the fall. At the end of the day, republicans will coalesce around a shared package, and the president will sign into law a bill that is neither beautiful nor all that big.

It Ain’t Beautiful

You can argue that beauty is in the eye of the beholder, but gratuitously stripping 13.7 million people of health insurance and taking food assistance away from millions of parents struggling to feed their children is pretty ugly stuff. And doing it to “pay for” tax cuts that will overwhelmingly benefit the wealthiest is both shameful and immoral.

As the economist and former State Senator Reynold Nesiba put it, this isn’t a beautiful bill. It’s an egregious transfer of wealth from the least among us to those who already enjoy substantial economic security.

Republicans like to emphasize the fact that their tax cuts will benefit everyone, not just those at the top. But when you take into account the full range of tax and spending cuts they’re proposing, there are no benefits for those at the bottom of the income distribution. Instead, the Congressional Budget Office (CBO) finds:

CBO estimates that if the legislation was enacted, U.S. households, on average, would see an increase in the resources provided to them by the government over the 2026–2034 period. The changes would not be evenly distributed among households. The agency estimates that in general, resources would decrease for households in the lowest decile (tenth) of the income distribution, whereas resources would increase for households in the highest decile.

It’s not just CBO. Researchers working with the Penn Wharton Budget Model (PWBM) have published similar findings. Those in the top 0.1% of the income distribution—i.e. those making at least $4.3 million per year—would get an average bump in their after-tax income of $390,000 while those in the bottom 20% of the income distribution—i.e. those making less than $17k per year—would lose about $820 per year in after-tax-and-transfer income. In other words, the House package strips resources from those at the bottom in order to provide a massive windfall to a small group of people at the very top. You can read more about the big winners and loser here and here.

Researchers at the Groundwork Collaborative don’t think much of the GOP’s fiscal package either. Instead of a beautiful bunch of tax breaks for American workers, they’re highlighting 13 ways the House bill increases the cost of living for working families.

That’s one reason House Democratic Leader Hakeem Jeffries and other lawmakers have dubbed it “One Big Ugly Bill.”

It Ain’t All that Big

Democrats aren’t just railing against the human and environmental harms the OBBBA will do, they’re joining a handful of republicans to gripe about the bill’s size as well. For example, the ranking member on the House Budget Committee, Rep. Brendan Boyle (D, PA-02), complained that “[e]ven with these draconian cuts, their bill could add more to the deficit than any legislation in decades.”

That’s a message the media has been hyping as well. By pointing to the recent Moody’s downgrade and a supposed rebuke from the bond ‘vigilantes,’ members of the press have tried to dissuade republicans from moving ahead with their big, budget-busting bill. Tobias Burns, who covers tax and the economy for The Hill, wrote How Trump’s big bill is shaking the bond market. Over at Bloomberg, readers were told, The Bond Market Hates His ‘Beautiful’ Tax Bill. CNN’s David Goldman wrote, Why the bond market is so worried about the ‘Big, Beautiful Bill’. And The New Republic declared, The GOP’s Budget Hawks Will Bankrupt the Country.

Republicans are mostly unnerved. They’re responding in the usual way, claiming that the tax cuts (along with some yet-to-be-announced deregulation) will unleash the entrepreneurial spirit, turbocharge economic growth, and generate so much new revenue that the deficit will actually shrink. When told otherwise by CBO, Speaker Johnson referred to their projections as “historically totally unreliable,” adding that 84% of CBO’s number crunchers are donors to democrats. He claimed that CBO is giving them “no credit” for the economic growth that will be spurred on by the tax cuts, and he insisted that when you factor in the revenue from the tariffs, it will be “deficit reducing at the end of the day.”

Treasury Secretary Scott Bessent is also shrugging off (and slagging off) the Congressional Budget Office, calling the rules that are used to “score” the bill’s cost nonsensical.

So how big is the fiscal package?

Well, it depends who you ask. According to the Congressional Budget Office (CBO), the bill's provisions would increase the federal deficit by $3.8 trillion over the next decade(2026-2034). So that’s the “size” of the bill according to the official scorekeeper.

When the House version of the OBBBA was evaluated using the PWBM, the cost came in substantially lower at $2.8 trillion, using conventional methods. With dynamic scoring, the methodology many republicans say they prefer, the size of the bill actually increases to nearly $4 trillion. Either way, the biggest increases in the deficit come in the first three years because many of the bill’s provisions—e.g. no tax on tips, overtime, auto loan interest, etc.—are set to expire after 2028.

All of the big headline-grabbing estimates suggest a massive bill that some warn could add more than $5 trillion to the national debt over the next decade. But as one analyst who closely follows the federal budget observed:

When you see deficit projections around the new tax bill - keep in mind how its scored. For a nano-second, the TCJA individual tax cuts "expire", a new baseline is set & $3.4-$4.6 trillion in tax revenue is "restored" and then immediately "cut" again. This "lost tax revenue" is built into the projection. The actual deficit expansion is much smaller and easily handled by a $30 trillion+ GDP economy.

It’s a wonky but important aspect of the debate that revolves around a very inside-the-beltway budget scoring concept known as the “baseline.”

Basically, there’s a disagreement about whether it makes more sense to “score” legislation using a “current law” baseline or a “current policy” baseline. Under current law, the 2017 tax cuts would expire at the end of this year, and the government would end up collecting more revenue in the years ahead, thereby reducing the deficits that would otherwise occur. By treating future revenue as a fleeting (current law) reality before acknowledging that this revenue will never materialize, CBO paints a much “uglier” fiscal picture over the coming decade.

Democrats, including former Treasury Secretary Larry Summers, don’t appreciate this nuance. He’s accusing republicans of waging a “war on math” by downplaying the true “cost” of their bill. I understand the politics. Having an eye-poppingly large price tag to club your opponents with seems like a good way turn voters against the bill. But to be honest, I’d rather evaluate the size of the package in terms of the net, new stimulus it will provide to the economy. That’s where the inflation risk lies.

So how much is that? Again, it depends on the estimate, but it could increase the deficit by ~$180B per year on average. I’ll readily concede that this is an ugly bill. A cruel bill. But is it a budget buster that puts us on an unsustainable fiscal path? Did it merit a credit downgrade? Will it ignite inflation by pushing out too much money?

I had a chance to share my views in a recent appearance on Bloomberg TV.

1. Only two republicans voted against the bill: Ohio’s Warren Davidson and Kentucky’s Thomas Massie. Maryland GOP Rep. Andy Harris, chairman of the Freedom Caucus, voted “present.”