How Will Trump’s Big Beautiful Bill Impact the US Economy?

“I don’t predict the bottom’s going to fall out [due to the bill’s increase to the debt-to-GDP ratio], but that does not mean we should underestimate the economic impact of spending $1 to $2 trillion a year on interest payments. That’s money that we could be spending on consumption or investment that would pay real dividends to the American people. And so, just like the credit card bill, if you let it run up too big you end up spending a lot of money on interest, which actually gives you zero benefit, and that’s the cost we’re already facing. That cost is going to increase, and then it does increase the risk of a large financial crisis.

“That is possible, although I’m not going to say that it’s guaranteed or even likely, but the risks are much greater now, and they will be much greater after we pass this bill than they have been in the past unless we do something to get our fiscal house in order.”

—John W. Diamond, Ph.D., Edward A. and Hermena Hancock Kelly Senior Fellow in Public Finance and Senior Director, Center for Tax and Budget Policy

About the Episode

Center for Tax and Budget Policy Director John W. Diamond analyzed the macroeconomic impacts of the One Big Beautiful Bill Act, the sprawling tax-and-spending package now signed into law by President Donald Trump, using the Diamond-Zodrow model of the U.S. economy. The results?

The package could modestly boost GDP — but the long-term benefits are limited. It will drastically increase the debt-to-GDP ratio, leading to a crowd-out of private capital and a decline in investment over time. Hear Diamond lay out the good, the bad, and the ugly in the legislation on the “Baker Briefing” podcast with Director David M. Satterfield.

This conversation was recorded on July 2, 2025. 

Mentioned in this episode:

• John W. Diamond, “Macroeconomic Effects of the One Big Beautiful Bill Act,” Rice University’s Baker Institute for Public Policy, July 2, 2025.
• The Editorial Board, “The Meh Tax Bill That Has To Pass,” Wall Street Journal, July 1, 2025.
• James A. Baker III and John W. Diamond, “DOGE Won’t Be Enough to Get the Federal Debt Under Control,” Wall Street Journal, February 24, 2025.

Subscribe and listen to “Baker Briefing” on Apple, Spotify, or wherever you listen to podcasts.

Transcript

A full transcript of this episode is available here. This transcript was AI-generated and has not been through editorial review.

About ‘Baker Briefing’

Hosted by David M. Satterfield,  the “Baker Briefing” podcast delivers timely analysis on breaking policy developments and other critical policy issues of the day in conversations with experts at the Baker Institute. New episodes are released weekly.

Select episodes of “Baker Briefing” are recorded in front of a live audience at Rice University in Houston, Texas. These recordings are free and open to the public. To learn about upcoming recordings and other public programming from the Baker Institute, subscribe to our “Events Digest” newsletter, delivered weekly.

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author(s) and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s) and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.