El Ignaciano / September 2025

The One Big Beautiful Bill Act (OBBBA)

Lorenzo L. Pérez

On July 4, 2025, the OBBBA was signed into law by President Trump. Various policy initiatives were put together into one “omnibus” budget bill that will define President Trump’s second administration and have strong impact on subsequent years. The OBBBA extends existing deficit-financed tax cuts well into the future, add a few more, and boosts spending on defense and on anti-illegal immigration efforts. As is frequently the case in congressional legislation, it includes provisions to ensure the acquiescence of particular lawmakers. It offsets some of the cost by cutting health care and food subsidies for the poor and by cancelling green energy subsidies.  Nonetheless, the bill as passed will increase the federal government debt of the United States by a large amount as indicated below.

This article reviews the main provisions of the OBBBA and assess them from an economic perspective and under the light of Catholic Social Teaching (CST).¹ In particular, the principles of the dignity of the human person, of the common good, of solidarity, and of the preferential option  for the poor can shed some light in the assessment of the OBBBA.  

OBBBA Main Provisions and Results

Impact on the Federal Government Debt

To focus well on the assessment of the expected impact of the OBBBA legislation, it is necessary to start by looking at the expected overall effect on the federal government finances.  On July 21, 2025, the Congressional Budget Office (the CBO) released the final score of the OBBBA indicating that the legislation will add $3.4 trillion to the primary deficit (revenues minus spending of the government other than interest) through 2034[ii]. The stock of the federal debt claims was $36.2 trillion as of May 2025. With interest, the Committee for a Responsible Federal Budget (CRFB) estimates that the increase in the debt will be $4.1 trillion through 2034.² The debt to GDP ratio will exceed 120 percent in 2034³ compared with about 100 percent now.

Supporters of the legislation claim that economic growth will cover the costs or that spending cuts will wildly exceed expectations.  The CRFB believes that none of these claims are justified.  There could be a short-term economic uptick as stimulus makes its way through the economy but the CRFB points out that economic modelers from across the ideological spectrum universally agree that any sustained economic benefits are likely to be modest or negative, and not one serious estimate claims that this legislation will improve the fiscal situation.⁴  Rather, positive growth effects are likely to be swamped by the effects of higher debt and interest rates.

One factor that is not taken into account in this discussion is the potential higher government revenue due to the increase in import tariffs.  Higher tariff rates could provide additional revenues.  President Trump’s tariff initiatives have been erratic, misguided and subject to wild swings which have made it impossible to model the effects so far.  More clarity on the policy is needed to do a proper analysis. There has been an increase in import tariff revenues already in 2025 as a result that since April the average import tariff rate has increased by more than 8 times to 17 percent (this amounts to a large indirect tax increase on consumption once importers cannot longer absorb the tariff increases in their profit margins).  A full analysis of the drastic increase in tariff rates will need to consider the supply chain disruptions of increased tariffs and the impact of the increase on consumer prices which will restrict demand and have a negative impact on economic activity and, consequently, on government revenue.

Tax provisions of the OBBBA

The OBBBA main selling point is the permanent extension of the tax cuts of the Tax Cuts and Jobs Act (TCJA) of 2017 passed during the first term of President Trump.  The TCJA markedly reduced income tax rates for individuals and made other changes that reduced the tax bills through 2025 and cut permanently the corporate-tax rates from 35 percent to 21 percent.  By pretending that the individual tax cuts were limited, the long-term projected cost of the bill was reduced but the expectation was that a future Congress would extend the individual tax cuts rather than allow them to lapse as scheduled. That has happened now with the passage of the OBBBA. There have been historical precedents to this as when President George W. Bush initiated temporary tax cuts in 2001 which President Barack Obama made them permanent for the most part. The OBBBA also has some provisions for the elimination of income tax on tips and overtime that were promised by President Trump during the 2024 presidential campaign. The income tax exception is graduated by income levels. More tax incentives have been included to encourage corporate investment.

Extending the TCJA tax cuts is expensive. Some of the tax cuts, including generous standard deductions and a tax credit for parents, are claimed by many taxpayers. But other provisions of the OBBBA such as keeping top marginal rates at 37 percent instead of going back to 39.6 percent, allowing bigger deductions for state and local taxes, and exempting more wealth from estate tax benefit the richest. While tax reductions are always popular with the electorate, it cannot be argued that the tax burden in United States is larger than in other rich countries. Data for 2022 show that the US had a tax revenue to GDP ratio of about 28 percent, considerably lower than many other rich countries. Germany, Netherlands, Italy, and France had ratios of around 40 percent of GDP.

To the extent that the OBBBA makes for lost revenue, it does by reducing the social safety net (medical insurance and food subsidies for the poor).  The CBO calculated that the net effect of the House of Representative version of the OBBBA bill would be regressive, with the poorest 30 percent being worse off than before, while the richest 10 percent would see their income after taxes and transfers increase by 2.3 percent.⁵

Medical Care and Supplemental Nutrition Assistance Program (SNAP)

The health care part of the OBBBC was not sold as a health care reform but through dozens of provisions it brings the biggest changes to health policy since the Affordable Care Act (Obama Care) of 2010.  The changes are expected to reduce federal health expenditures by 15 percent or by a trillion dollars through 2034.  

The OBBBA affects Medicaid (the medical insurance for the poor).  Some Medicaid recipients will for the first time be obliged to work or do some other activities under the euphemistic label of community engagement requirements.⁶ The reason for this requirement is the belief that there are individuals capable of working who are in Medicaid. But there is a problem with this approach, which is that Medicaid recipients are mostly disabled, older people, and caregivers who cannot work. Apparently, less than 10 percent of Medicaid recipients are unemployed without reason and they would be the only ones to run the risk of being denied Medicaid coverage under a work requirement rule.  Those who want to reduce Medicaid eligibility will probably need to rely more in the additional paperwork required now to qualify for Medicaid. The OBBBA requires states now to reassess recipient’s eligibility for Medicaid every six months rather than every year.  Strict limits have been imposed on Medicaid provider taxes, duties that states charge medical providers as a roundabout way of collecting more federal Medicaid dollars.  This measure is supposed to save money to the federal government. 

All in all, the expectation is that these Medicaid changes in addition to saving the federal government as much as $1 trillion during the next 10 years would result in as many as 8 million participants losing their medical insurance.⁷ A lot will depend on how strictly the states will enforce the new rules and allow its residents to lose Medicaid.  If they don’t, less people will lose Medicaid but then the increase in the federal debt will be larger.  

There are also other measures that affect medical insurance at large. The premium tax credits which permit millions of low- and medium-income workers to get private health insurance in the Affordable Care Act health exchange markets will be allowed to lapse at end-2025.  This amounts to a tax increase to working families and could lead to medical insurance companies leaving health exchange markets in some states with a resulting increase in premiums. Previously insured persons may decide to go without insurance with negative health results as treatments are delayed.  Those staying in health exchange markets may also face higher premiums as younger and healthy former participants drop out when premium tax credits expire.  Also, the enrollment periods in the health insurance markets have been shortened and other changes are likely to result in a decline in the number of people with medical insurance.  The CBO has estimated that 3 million will be without medical insurance as a result of these changes. 

It should be realized that people who lose Medicaid or cannot get or afford medical insurance in the health exchanges, will recourse to the emergency rooms of hospitals for health problems.  Some of the costs of treating uninsured patients will be passed on onto paying hospital patients.  Hospitals which are already financially stretched may not be able to absorb the rest of the costs of treating uninsured patients and may be forced to close.  In rural areas the closing of hospitals will have devastating effects because health care will be only hours away and because some of these hospitals are the major employers in small rural communities.

The OBBBA has taken a similar approach regarding supplemental nutritional assistance programs for the poor (SNAP).  States will have to start shouldering some of the costs and recipients would be subject to more stringent work requirements.  The result could be as much as $300 billion in cuts and more than a million in losing benefits.  Knowing the unpopularity of these changes, the Republicans wrote the law to start only after the congressional elections in November 2026.  

Green energy subsidies

The OBBBA abolishes hundreds of billions of dollars’ worth of green subsidies enacted under the Biden administration.  Tax credits for wind and solar energy would stop.  Subsidies for electric vehicles, heat pumps and other energy-efficient equipment would also be cut off. Grants for rooftop solar projects to serve lower- and middle-income consumers are being stopped. Clean-energy projects which have some government support would have to begin construction within a year of the OBBBA’s enactment to maintain the government support.⁸

The OBBBA turns the US environmental policy on its head.  Aside from the elimination of green subsidies, the OBBBA restarts the leasing of federal land for new oil and gas projects.  It instructs the Interior Secretary to conduct at least 30 auctions of offshore oil and gas leases in the Gulf of Mexico.  America’s emissions of carbon dioxide will increase accordingly moving the US further away from its international commitments and possibly encourage other countries to do the same.  The United States will fall behind China and Europe more in the adoption of clean energy.

Defense and anti-illegal immigration enforcement

The reduction of federal spending on Medicaid, nutritional assistance, and green subsidies contribute partially to finance increased defense and anti-illegal immigration enforcement spending.  In defense, an additional $150 billion would go to the supposed modernization of nuclear weapons and shipbuilding as well as for the project to build a dome to shield the US from missile attacks.

Anti-illegal immigration enforcement receives an additional $170 billion over the next 10 years.  $50 billion are set aside to the finishing of the wall in the Mexican border (the one initiated during the first Trump administration and that President Trump had promised that Mexico was going to pay for it).  Some $45 billion are directed for new facilities to detain illegal immigrants and $35 billion to recruit and give bonuses to border-patrol and anti-illegal immigration-enforcement agencies.  The biggest beneficiary agency is the Immigration and Customs Enforcement agency (ICE) which will receive nearly $75 billion over four years. The Economist reports that is more money than the annual budgets for nine federal law-enforcement agencies combined.⁹  This surge in spending could make more achievable the goal of deporting 1 million migrants a year.

An assessment of the OBBBA

The projected large increase in the federal government debt  during the medium term further deteriorates the fiscal outlook of the United States.  From the perspective of sound fiscal policy management this is an unwelcome result which makes it more difficult to put federal finance on a sustainable basis.  A continued rise in the debt will put upward pressure on medium to long term interest rates that could be further aggravated if bond holders, particularly foreign holders of American bonds, lose trust in the economic management of US authorities. Moreover, The OBBBA was passed without addressing the two major fiscal problems of the United States: (a) the increased deterioration of the Social Security finances with projections showing that the Social Security Fund will be extinguished ty 2034 and (b) the out of control rising Medicare costs (health program for the elderly).¹⁰

From the perspective of Catholic Social Teaching (CST), the outcome of the OBBBA is harmful for the common good of current and future generations.  By further aggravating the fiscal outlook, the required fiscal adjustment measures when taken will need to be harsher.  This damaging impact on the common good is more deplorable when we analyze the main components of the OBBBA and find that CST principles like the respect of the dignity of the human person, the principle of solidarity, and the preferential option for the poor are not respected.

The OBBBA reduces tax liabilities, and the main beneficiaries are the top income earners and the shareholders of corporations, something that will increase the inequality in the US.  The cost of the tax reduction is financed by additional borrowing and by reducing benefits to the poor by cutting Medicaid and SNAP benefits. This probable outcome is not in line with principle of solidarity of the CST which calls for a reduction in inequality as a means of respecting the dignity of every human being.  The design of the law is the opposite of the preferential option for the poor. The lack of action to try to improve tax administration goes also against the principle of solidarity.  Inexplicable, unless the objective is to permit tax evasion, the resources and personnel available to the Internal Revenue Service (IRS) are being reduced, something that will encourage tax evasion.¹¹

The elimination of subsidies for green energy and the opening of federal lands to oil and gas exploitation, jointly with the recent announcement of the Environmental Protection Agency that it will eliminate many clean air regulations goes against the need to protect the common home.  The green subsidies of the Biden administration could have been reassessed with the aim of making them more efficient (including the introduction of a moderate carbon tax to tax directly polluters).  But the total elimination of the green energy subsidies is totally unjustified. Fortunately, the transition to clean energy (solar and wind power) is occurring already in the United States with most of the plans to open new electric plants relaying on clean energy.

The OBBBA provides additional ample funds to continue to pursue the anti-illegal immigration policies of the Trump administration.  The United States has the right, as any other country, to control its borders, examine requests for political asylum, and deport undocumented criminals. But countries can and should develop programs to accept immigrants who want to come to seek better economic opportunities.  The acceptance of immigrants coming to work and contribute to society is not only for the benefit of the immigrants.  Indeed, most developed countries need foreign workers and entrepreneurs as the growth of their populations and work force decline.

CST teaches that the human dignity of immigrants has to be respected and that immigrants have the right to emigrate to other countries to look for better living conditions. The CST calls for destination countries to have an open mind to immigration and provide resources and opportunities to immigrants to integrate them in society.  The way that ICE has been carrying its activities by arbitrary rounding up for deportation foreign born residents without checking residency status clearly is not in line with the CST. Supposedly undocumented persons are being arrested in their homes and in their places of work without due process by agents with masked faces and who are not willing to show official identification. If the Alligator Alcatraz Detention Center in the Everglades with its poor living conditions and immigrants being held in cages before being deported is an example of the types of detention centers that are being planned, these detention centers cannot be supported. There is an urgent need to reassess the ICE policies and the construction of detention centers. At the same time, the OBBBA does not provide additional resources for more immigration judges and courts to accelerate the requests for political asylums and reduce the backload in addressing these requests.  The decision to provide large resources for finishing the wall with the border with Mexico can be also questioned from the perspective of need and usefulness.

Concluding remarks

The effects of the OBBBA can be strongly criticized from an economic and a CST perspective. The likely large increase of the federal government debt because of the implementation of the OBBBA further increases the fiscal problems of the US.  At a time when there is a need to increase government revenue as part of a fiscal package to arrest the fiscal deterioration, tax cuts are implemented with most of the benefits going to upper-income people.  The expenditure cuts of the bill are focused on reducing health and food benefits of the poor and reducing green energy subsidies.  The excessive additional resources to deport immigrants without regard to their legal status and to the respect they are owed as human beings are objectionable.

¹ The signed version of the legislation has many areas, and this article discusses the most important.  For example, the creation of savings accounts for newborn and the modest expansion of the child tax credit are not discussed.
² The CBO is an independent government agency in charge of making estimates of the costs of congressional actions.  For purposes of this type of work, the CBO does 10-year projections based on current legislation and key macroeconomic variables.
⁴ See the CRFB:  “Final OBBBA Score Confirms Long Road to Fiscal Recovery”, July 21, 2025. The CRFB is a non-partisan, non-profit organization committed to educating the public on issues with significant fiscal policy impact.  Its board of directors is composed of politicians (from both parties), former public servants and directors who are active in the financial sector.
⁵ At the time of this writing there are indications of a weakening in investment and consumer demand and a deceleration of economic growth in the first half of 2025.  The stock market is reaching new levels apparently helped by the scaling back of President Trump’s tariff increases plans.  
⁶ The Economist, July 5^th, 2025.
⁷ The Economist (July 5^th, 2025} reports that a similar rule was tested in Arkansas in 2018 and nearly a quarter of those subject to the new rules lost coverage before a federal judge ended the experiment.
⁸ CBO’s letter to congresswoman Jodey Arrington and Congressman Guthrie dated June 24, 2025.
⁹ The Economist, July 5, 2025.
¹⁰ The Economist. July 12. 2025.
¹¹ The social security and Medicare problems are not impossible to solve.  There have been several commissions during the last couple of decades that have come with sensible proposals to address these problems. The author has made recommendations in this regard in:  “Possible Measures to address the Fiscal Problems of the USA”, El Ignaciano, March 2024.
¹² In 2024, the IRS estimated that the tax gap—the difference between taxes owed to and collected by the federal government for tax year 2022 was $606 billion after enforcement actions, not an insignificant amount.

Lorenzo L. Pérez, PhD. in Economics, Univ. of Pennsylvania, is a retired economist who worked for over 30 years at the IMF, and prior to that worked at the AID and the Treasury Dept. of U.S.A. He is a member of the Editorial Board and nonresident columnist of El Ignaciano.