CBO: One Big Beautiful Bill Increases Deficits by $3.4 Trillion
The Senate Version of the OBBBA may be worse than the House Version
Yesterday the Congressional Budget Office (CBO) released its dynamic score of the One Big Beautiful Bill Act (OBBBA), and the numbers are staggering. The projected increase in the deficit is much higher than the $2.4 trillion originally estimated under conventional scoring.
According to the CBO’s dynamic score, the macroeconomic feedback is $85 billion, meaning OBBBA would pay for just 3.5% of its cost — before interest. This modest feedback is because the expected increase to average annual economic growth is just 0.04 percentage points above the CBO baseline projections over the next decade. By comparison, the promise of 3% economic growth would require annual growth to be 1.2 percentage points faster than the CBO baseline projection — that’s 30 times what CBO projects from this bill.
This won’t come as a surprise to anyone who has followed OBBBA. My Mercatus colleagues Veronique de Rugy and Jack Salmon have each written extensively on the lack of pro-growth policies in the bill. It has also been clear from prior CBO analyses that a straight extension of the 2017 Tax Cuts and Jobs Act (TCJA) would not produce the promised growth, as the Committee for a Responsible Federal Budget has also highlighted.
Despite its modest macroeconomic feedback, the bill’s implications for federal interest costs remain alarming. CBO estimates that the additional debt incurred under OBBBA would raise interest rates by an average of 14 basis points over the baseline, generating an estimated $441 billion in added interest costs. The true impact could be much worse if the CBO assumption for the impact of debt on interest rates was closer to what the academic literature suggests. As Salmon has previously documented, CBO under-projects this relationship by about half.
Combining CBO’s interest projection with its macroeconomic feedback, OBBBA would raise the deficit to nearly $2.8 trillion. However, this figure excludes the full cost of servicing the additional debt. As detailed in footnote b of Table 1 in CBO’s analysis, incorporating debt service pushes the cumulative deficit impact to $3.4 trillion — more than 40% above OBBBA’s conventional $2.4 trillion estimate. As a result, if OBBBA is passed, CBO estimates that the public debt-to-GDP ratio would reach 124% by 2034, compared to just 117% under current law.
Fortunately, Senate negotiations are still underway, and there have been some signs of progress, albeit with setbacks. As Salmon puts it:
The Senate’s version of the Big Beautiful Bill is, in places, slightly more beautiful than the House’s. Its discipline on provider taxes, SALT, and business deductions is commendable. But where it’s not merely treading water, it’s actively backsliding, especially on corporate subsidies, carve-outs, and long-term debt.
The Senate’s decision to fully extend TCJA’s business provisions is a major improvement in terms of economic growth potential. Nevertheless, as prior research from the Tax Foundation has shown, the provisions are unlikely to be self-financing within the 10-year budget window. This means extending those provisions will almost certainly increase OBBBA’s cost even on a dynamic basis. It’s also unclear to what degree either the provider taxes or the tighter SALT cap will be preserved — likely undoing much of the Senate’s progress in those areas.
In short, it is plausible that the final Senate version ends up exacerbating budget deficits to a greater extent than the House-passed version of OBBBA.