Large-scale Legislative Proposal Fails to Bring About Substantial Change
The One Big Beautiful Bill Act (OBBB), signed into law by President Donald Trump on July 4, 2025, is a significant legislative initiative that renews and expands upon the 2017 Tax Cuts and Jobs Act. The OBBB, which was supported by Speaker of the House Mike Johnson, is estimated to add approximately $3 trillion to the national debt, while generating $4.46 trillion in tax revenue cuts over a decade.
The OBBB's impact on federal spending is multifaceted. While it is projected to reduce federal health-care spending by 3.8 percent over the next ten years, this reduction is much less than the 8.8 percent reduction enacted by the Balanced Budget Act of 1997. Excluding health care, the OBBB will slightly increase federal spending due to more spending on defense and immigration enforcement.
The OBBB includes several provisions that aim to reduce federal spending. For instance, it restricts able-bodied adults' eligibility for Medicaid with vague "community engagement" requirements, and increases oversight and verification of eligibility for Medicaid and Obamacare benefits. However, these savings and associated losses of health-care coverage are likely greatly overestimated.
One of the controversial provisions in the OBBB is the "no tax on tips," which is expected to reduce revenue by $32 billion over the ten-year budget window. The bill also terminates $500 billion in tax credits for "green energy" established under the Biden administration.
The OBBB's estimated $1.15 trillion ten-year cuts to federal health-care spending are significant but not unprecedented, as we now spend much more than we used to. According to Larry Levitt, writing in the New York Times, these cuts are significant, but they do not represent a dramatic shift in spending patterns.
The savings from reduced student-loan subsidies and the expansion of work requirements for food stamps in the OBBB are outweighed by the spending on defense and immigration enforcement. The bill's "America First" international tax reforms amount to $180 billion.
Retirees will benefit from a higher deduction-similarly set to expire after four years-for taxes on Social Security benefits. The OBBB makes no attempt to limit states' ability to claim ever more federal funding by continually expanding their Medicaid programs, unlike Republican 2017 health-care reform proposals.
The Congressional Budget Office (CBO) projects that existing spending commitments will surge from 21.1 percent to 24.4 percent of GDP mostly due to the relentless growth of Medicaid and Medicare. Despite the OBBB's cuts, federal health spending is projected to grow from approximately $2 trillion in 2025 to $3.4 trillion in 2035.
The OBBB's impact on the national debt and federal spending is a topic of ongoing debate. While it reduces federal revenue by $4.4 trillion over a ten-year budget window, it is smaller than the 2012 bipartisan agreement. The future of the OBBB's provisions and their impact on the economy will be closely watched as interest rates rise and both parties grapple with the need to increase taxes or cut spending.
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