The Republican tax and spending package, the so-called “One Big Beautiful Bill” Act, took key temporary provisions of the 2017 tax reform and made them permanent, including reduced marginal tax rates and business provisions that heavily favor high-income households. Even the most vocal Republican deficit hawks treated these tax cuts as non-negotiable.
The tax cuts, while framed by Republicans as pro-growth, come with significant fiscal and distributional costs. Analysis from our team at the Institute for Macroeconomic and Policy Analysis explains that the new law represents a fundamental misunderstanding of sound fiscal policy. The report finds that, from an economic perspective, it will fail us on every front: it will widen the deficit, weaken social safety nets, and dramatically increase inequality—all while delivering no credible economic gains and pushing the tax code further out of balance.
Permanently Cutting Taxes for Capital Owners: No Growth Benefit, but Big Fiscal Cost
Using the macroeconomic policy model we’ve developed at American University’s Institute for Macroeconomic Policy and Analysis, we project that the law will reduce GDP by 0.08% by 2034. In other words, making tax breaks for the wealthy and for businesses permanent will not translate into meaningful long-run growth.
Why not? Here’s one example: The law permanently extends the 20% deduction for pass-through income at entities structured so that profits are not taxed at the business level but instead at the owners’ individual income tax rate. Research by IMPA and others shows that this deduction does not promote investment and growth, as its proponents claim. Our research also shows that, if firms do not have to pay taxes on their investments, the economy would benefit from higher corporate taxes. The 2017 reform slashed the corporate tax rate from 35% to 21% and the new law maintains that low rate while introducing even more corporate tax breaks.
If the new tax and spending law won’t boost growth, what will it do? It will worsen the fiscal landscape. By 2034, we project that federal revenues will be 7.5% lower than they would have been if the temporary provisions in the 2017 law had been allowed to expire. After considering the feedback effects from changes to the macroeconomy, we project that the cumulative deficit over the same 10-year period will reach nearly $3.4 trillion.
Permanently Harming Low-Income Families
The new law will also worsen inequality. To finance generous tax breaks for business and the wealthy, Republicans leaned heavily on deep cuts to safety net programs. Medicaid will see the most dramatic reduction: approximately $1 trillion in cuts over ten years, according to CBO estimates. SNAP (food assistance) will be cut by $186 billion.
As a result, we project that, by 2034, the law will increase after-tax income for the top 10% by roughly 2%. But for the bottom 10%, we project the law will reduce after-tax income by approximately 6.6%.
Giving permanent tax breaks to capital owners while inflicting permanent harm to low-income families has long-term economic implications. Cutting Medicaid and SNAP is not just fiscally regressive; it is economically shortsighted. Social insurance programs serve society’s most vulnerable while providing essential economic functions that pure accounting exercises ignore. Research increasingly shows Medicaid, SNAP, and other social insurance programs function as long-term social infrastructure investments. They save lives and improve health outcomes, which reduces disability and enables more efficient household resource allocation. Standard macroeconomic models, including ours, understate their full economic value.
By treating these programs as just another budget line, while ignoring their long-term economic value, we fear Congress has made a serious policy mistake.
A Missed Opportunity on Climate
A particularly disappointing aspect of the law is its repeal of a $0.5 trillion in tax credits authorized by the Inflation Reduction Act (IRA).
As we previously reported, continuing all the IRA’s incentives would have added to U.S. economic growth. That impact is included in macroeconomic policy models like ours. But there’s a lot more that macro models can’t easily include. Economic research on similar policies suggest that continuing the credits could have kick-started green research and development and reduce the damage from climate change that fuels our natural disasters and reduces our productivity.
Rather than building on the IRA to steer investment toward strategic climate goals, Republican lawmakers favored untargeted corporate tax breaks. For instance, the bill includes broad-based provisions for “full expensing” of some capital investments, allowing companies to deduct the full cost immediately. In doing so, Congress wasted an opportunity to better align public investment with long-term social and local priorities.
Redistribution in Reverse
The Republican consensus represents redistribution in reverse. Rather than meaningful tax reform, they chose a massive transfer of resources from working families to the wealthy, disguised by pro-growth rhetoric unsupported by research.
We will soon need to return to the question of how to reduce government debt. When the next debate over fiscal policy begins, we encourage Congress to follow the research, which tells us that increasing taxes on the wealthy and corporations can raise significant revenue and decrease inequality without sacrificing growth.