Stars, Stripes, and Spending

As the OBBBA reaches the President’s desk, is it worth celebrating this Independence Day?

Happy Fourth of July!

Yesterday, Congress sent the One Big Beautiful Bill Act (OBBBA) to the White House for a celebration today.

I have a few final thoughts about the bill as the president gets read to celebrate the passage of his signature tax law. It boils down to the famous Thomas Sowell quote that “there is no solutions, just tradeoffs.”

There’s no denying that the OBBBA contains some very good provisions. In fact, from a policy standpoint, several reforms in the final package are long overdue and genuinely impressive.

The bill is pro-growth in large part because it permanently expands full and immediate expensing for equipment and machinery – a powerful pro-growth provision that economists across the ideological spectrum have praised for decades. It makes several other tax cuts permanent. It scales back (though not enough) green-energy subsidies implemented during the Biden years. It makes the 20% small-business income deduction (Section 199A) permanent. It expands access to federal lands and waters for energy development, including oil, gas, coal, and critical minerals. It tightens Medicaid and food-stamp work requirements, including for parents of children over 14, and limits the service-provider tax. It includes health savings account (HSA) expansions to boost choice and flexibility for Americans saving for their health-care expenses. And it imposes some accountability on universities for federal student-loan defaults. It also removes some bad provisions from the House version, such as section 899.

In short, this bill is not without real merit. But we must ask the hard question: Is it worth it?

Opinions differ on this among those of us who believe in smaller government. On one hand, you have those who claim that these provisions are so great that it doesn’t matter that the fiscal impact of the overall bill is troubling. Others believe that not raising taxes on the American people by letting the TCJA expiring provisions lapse is worth any compromises this bill makes. Yet others believe that tax cuts are always, in and of themselves, a good thing.

But some of us are more worried about the net effect of OBBBA. In part, this is because the same bill that makes full expensing permanent, and delivers some minor but necessary entitlement reform, also adds trillions of dollars to the national debt, even accounting for economic growth, at a time when interest costs are already exploding. It retains a host of distortionary tax credits and adds, and in some cases expands, a few more. For all the talk of $1.6 trillion in spending cuts, it reduces the growth of spending, but overspending remains rampant. It includes the outrageous lifting of the state and local tax (SALT) deduction cap—a regressive and unfair giveaway to wealthy taxpayers in high-tax states. And much more.

For what it’s worth, I think it is wrong to say that we need to “pay for tax cuts” per say. We have a spending problem, not a tax problem. Americans as a whole play plenty of taxes. Rich people in particular pay more than their fair share because our tax code is very progressive.

However, at what point does it become totally fiscally irresponsible to cut taxes without cutting spending by enough so as not to add to our already deteriorating fiscal outlook? In other words, at what point does the tax cuts to debt tradeoff become negative. We have an enormous government debt; we have an enormous budget deficit; and all sensible people know that this is a problem that will eventually blow up in our faces. Debt is expensive, it is dangerous, and it is anti-growth. And the fact that our debt and deficits are the product of too much spending, as opposed to too little revenue (revenue as a share of the economy has been relatively constant unlike spending as a share of the economy), doesn’t change this fact. Also, because Americans repeatedly say that they want big government, so why shouldn’t we insist that they pay for the government they claim they want? These are important questions that no one wants to ask when we are told the only choice before us is to prevent a tax increase on Americans, or to give up adopting a provision that would have always wanted to see adopted.

But these are not the only choices we have, of course. In my opinion, if Republicans want to lower the American people’s taxes they need to become serious about scaling spending down. If they can’t for political reasons, then they need to limit the scale of their ambitions. Because for all their protest that under no conditions should we raise taxes on today’s Americans, their behavior is risking large tax hikes for Americans tomorrow.

The same goes with the American people. If they want big government, they need to pay for it. We can’t continue to have European levels of spending and American lower taxes. Legislators can’t continue promising that benefits on Social Security and Medicare won’t be touched at all, even though the programs are insolvent and they already are the driver of our debt and continue lowering taxes.

So here are my thoughts about this final bill. Am I happy that full expensing and a few more provisions have been made permanent? Yes. I can’t overstate how important the permanency of these provisions is for business investments and prosperity. But in the end, the bill perpetuates the idea that we can give the American people lower taxes without ever touching benefits for seniors, all the while distributing subsidies to corporations left and right. This is why we have the spending problem we have and why it will continue.

Now there’s always the possibility that economic growth will come in swinging, eventually because of a massively successful deregulatory agenda that produces energy abundance and AI dominance, and all that. But shouldn’t we hedge our bets by taking under consideration how hard this ambitious plan is to achieve?

Until legislators are willing to confront the hard trade-offs between what government provides and what taxpayers can afford, even the best provisions in OBBBA will be little more than fiscally reckless victories on borrowed time.

On that note, take our survey here, and Happy 4th of July!!