The ‘One Big Beautiful Bill’: what it is and how it might affect the U.S. economy

MAPFRE Economics, MAPFRE’s research arm, highlights in its Economic and Sectoral Outlook 2025: Perspectives for the Second Half of the Year that several analysts have already warned about long-term fiscal imbalances, given a possible disconnect between the scale of the tax cuts and the adjustments in public spending.

In the fiscal sphere, the central component of the OBBBA is the expansion of much of the provisions of the 2017 ‘Tax Cuts and Jobs Act’ (TCJA), which includes maintaining the cuts to the personal income tax, the expansion of the standard deduction, and the higher threshold for the estate tax exemption starting in fiscal year 2026. At the same time, child tax credits are expanded and new tax deductions are introduced for tips, overtime, car loan interest, and for individuals over 65 on their taxable income. Likewise, the deduction limit for state and local taxes (SALT) is temporarily increased.

As for investment incentives, an immediate and permanent deduction is established for investments in short-lived assets and in R&D. This measure is considered one of the elements with the greatest positive structural effect on growth. Tax benefits are also promoted for strategic sectors, such as metallurgical coal (classified as a “critical mineral”), in order to encourage its production, and the application of a tax on methane emissions is delayed by ten years. Along the same lines, the IRA tax credits for renewable energy projects are gradually phased out.

On the spending side, the OBBBA includes increases in defense and immigration control. Spending on social programs such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP) is reduced, although this measure is postponed until 2027, after the midterm elections. Finally, the debt ceiling is raised by $5 trillion, bringing it to $41.1 trillion and avoiding another budget negotiation at least until 2027.

The Congressional Budget Office (CBO) estimates that the OBBBA will add around $3.8 trillion to the federal deficit over the next ten years, and up to $4.5 trillion if the interest associated with the debt is included. In this regard, the volume of debt held by the private sector is expected to grow to 118% of GDP by 2034. 

This increase in the deficit and debt is explained by the extension of the TCJA’s tax provisions and the new deductions introduced. In contrast, spending cuts are applied in a deferred manner starting in 2027, reflecting the political strategy of immediate stimulus and postponed fiscal consolidation ahead of the midterm elections, despite the higher risk of structural imbalance in the medium term.

Furthermore, MAPFRE Economics points out that there is a risk that the temporary measures of the OBBBA (such as the expanded deductions) will be renewed in future electoral periods, further exacerbating the fiscal deterioration. In the financial markets, the OBBBA has raised expectations for net debt issuance and has pushed up Treasury bond yields. In this regard, the interest burden, already higher than defense spending, “calls into question the sustainability of the debt,” given that measures to limit commercial banks’ exposure to public debt (which accounts for around 20% of their total assets) have been limited, and “the risk persists that foreign investors may diversify away from the dollar,” despite the removal of tax penalties.

Beyond the immediate impacts of the short-term fiscal stimulus, the growth of interest rates associated with public debt indicates “a worrying dynamic” for MAPFRE Economics. “Some analysts believe this represents a structural turning point, in which the high level of debt and the sustained increase in real interest rates could lead to a crisis of confidence if the necessary corrective measures to balance the relationship between debt and the fiscal deficit are not adopted,” they argue.

The OBBBA represents an important legislative triumph for the Trump administration’s agenda, thus consolidating several electoral promises regarding fiscal reduction and reindustrialization. However, the MAPFRE Economic Research argues that “the fiscal cost is significant, and its design largely compromises future budgetary sustainability.”

“In an environment of rising real interest rates, increasing debt servicing costs, and geopolitical fragmentation, the fiscal credibility of the United States could deteriorate,” it insists. As a result, the country could be approaching the critical point of a debt cycle, in which servicing costs surpass budgetary room for maneuver. Although a fiscal crisis is not inevitable, avoiding one requires an increase in revenues and a rationalization of public spending which, for now, does not appear to be part of the current administration’s plans.

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