Investment declines long-term, despite a short-term boost from tax cuts, modeling shows
The “One Big Beautiful Bill Act” could modestly boost GDP and investment over time, but it would seriously increase the national debt, pushing the debt-to-GDP ratio from 98% to 122%, according to a new report from Rice University’s Baker Institute for Public Policy.
“Our model highlights the long-term fiscal burden of financing the tax changes through borrowing,” said John Diamond, director of the Center for Tax and Budget Policy at the Baker Institute. “If we’re going to pass tax reform, it needs to be done in a fiscally responsible manner. By using a ‘current policy’ baseline accounting method rather than a ‘current law’ baseline, policymakers are opening the door to trillions more in added federal debt.”
To enhance the bill’s economic impact and fiscal sustainability, policymakers should focus on making pro-growth provisions permanent, limiting tax spending and ensuring the reform is fiscally sustainable, according to the paper, “Macroeconomic Effects of the One Big Beautiful Bill Act.”
The paper digs into the bill’s details, the economic model used for the analysis, and what all this means for the future.
Diamond’s research focuses on federal tax and expenditure policy, as well as state and local public finance. He is co-editor of “Pathways to Fiscal Reform in the United States” and “Fundamental Tax Reform: Issues, Choices and Implications.” Diamond has testified before the U.S. House Ways and Means Committee, the U.S. House Budget Committee, the Senate Finance Committee, the Joint Economic Committee and other federal and state committees on issues related to tax policy and the U.S. economy.
To schedule an interview with Diamond, contact Avery Ruxer Franklin, media relations specialist at Rice, at [email protected].
Written by Avery Ruxer Franklin for Rice News.
