Megabill implications for the economy

President Trump’s “One, Big, Beautiful Bill” signed into law on July 4th. Since then, Democrats have focused on its potential impact, warning that it could reduce access to health care and food assistance for many Americans—a message that has dominated the news cycle. Many of the cuts don’t start going into effect until the end of 2026, after the midterm election.

So what goes into effect now? Virtually the entire tax section of the bill, which makes up the vast majority of its overall cost. This includes extending the 2017 tax brackets, the expanded (and now increased) standard deduction, and lower corporate tax rate. It also includes several new tax cuts, namely the ability to deduct overtime, tips and car loan interest, and an increase in the cap for State and Local Tax deductions from $10,000 to $40,000.

Also included in the bill was a 4-year hiatus on the national debt limit, giving our creditors assurances that the United States will not default on its debt obligations. Prior debates over the debt ceiling have resulted in the U.S. credit rating being downgraded, increasing the cost of borrowing and lowering overall GDP.

All combined, the One, Big, Beautiful Bill Act (OBBBA) is going to inject new economic stimulus into the economy. This is a mixed blessing, as many economists expect the federal reserve to maintain higher interest rates to curb inflation. However, as President Trump continues his crusade to trim the federal workforce and tighten immigration enforcement, the economy will need this stimulus to avoid dipping into recession.

Looking ahead through the end of the year, there are a few potential economic hurdles that could come into play.

First, President Trump’s trade policies continue to carry substantial risk and, if fully enacted, could lead to widespread economic instability. Most in Washington do not expect the extremely high tariffs proposed earlier this year to ever fully go into effect, as the President has continually delayed their implementation before any lasting, systemic harm, could begin. Still, the risk remains and is a consistent area of concern.

Second, Congress still needs to pass a government funding bill by October 1 to avoid a government shutdown. The chances of a shutdown have gone up with the passage of the OBBBA, as Democrats feel particularly scorned by the partisan package. Moreover, President Trump is hoping to enact a rarely-used rescissions package, clawing back even more funding from Democratic priorities that were funded last fiscal year. This has soured virtually any chance at a bipartisan government funding agreement, setting the stage for a government funding fight with no easy resolution.

In short, passage of the OBBBA will likely have a positive, albeit modest, impact on the economy over the next 12-18 months, with a more uncertain and potentially negative outlook beyond due to rising U.S. debt and cuts to social services programs for low-income individuals.