Why I support the Omnibus Reconciliation Bill (One Big Beautiful Bill)
How did this bill come to be? The answer is simple: The United States' exorbitant privilege—the global demand for U.S. debt—and the general dynamism of its economy allow for deficit-financed tax cuts that no other country could sustain without risking an imminent debt crisis.
Is it wise to indefinitely rely on the global demand for U.S. debt to continue accumulating more of it? Probably not. However, the U.S. is unlikely to face a serious sovereign debt crisis similar to the 1997 Asian financial crisis or the 2010 Eurozone debt crisis.
Despite having relatively low tax rates compared to most developed nations, the U.S. remains one of the wealthiest countries in the world, with a GDP per capita far exceeding that of any other large, developed economy.
Moreover, U.S. entitlement programs function like a treasure chest. If Congress adjusts the eligibility age in line with rising life expectancy, it would help structurally adjust the debt trajectory, stabilizing fiscal imbalances.
As a last resort, the U.S. could reform entitlement programs, raise taxes, and cut discretionary spending, ensuring that a chaotic sovereign debt crisis is avoided. A poorer country with a less dynamic economy, a higher GDP/debt ratio and a much higher tax burden simply doesn’t have the same margin of error or fiscal wiggle room.
This bill will demonstrate that the U.S. can still implement substantial spending cuts, which may, counterintuitively, reassure bond markets. Over the past quarter-century, Congress has only passed revenue-reduction bills—either through tax cuts or increased spending. Even the Budget Control Act of 2011 was an attempt to contain future growth in discretionary spending via caps and sequestration, but it didn’t result in real, immediate cuts.
The Omnibus Reconciliation Bill (OBBB) is expected to enact the largest spending reductions relative to U.S. GDP, cutting $2.5 trillion over a 10-year period. However, due to the cumulative effect of various tax cuts, the bill will add $2.5 trillion to the primary deficit over the same period.
That said, if signs of concern emerge in the U.S. bond market in the coming years, some of these tax cuts could be partially repealed. Previous presidents—Reagan, Bush 41, Clinton and Obama—all raised taxes to generate revenue while maintaining generally lower tax rates amidst fiscal imbalances in the 1980s, 1990s, and 2010s. Reagan’s initial tax cuts were so expensive that his administration later proposed raising taxes to offset some of the initial cuts. By compromising on these offsets, Republicans also gained leverage over a Democratic-controlled Congress, combining tax increases with spending cuts.
Similarly, the OBBB will create positive path dependencies for future Congressional negotiations on deficit reductions by simultaneously lowering both government spending and tax levels. As a result, future agreements will likely involve less aggressive tax increases and deeper spending cuts than they would have otherwise.
Is it wise to indefinitely rely on the global demand for U.S. debt to continue accumulating more of it? Probably not. However, the U.S. is unlikely to face a serious sovereign debt crisis similar to the 1997 Asian financial crisis or the 2010 Eurozone debt crisis.
Despite having relatively low tax rates compared to most developed nations, the U.S. remains one of the wealthiest countries in the world, with a GDP per capita far exceeding that of any other large, developed economy.
Moreover, U.S. entitlement programs function like a treasure chest. If Congress adjusts the eligibility age in line with rising life expectancy, it would help structurally adjust the debt trajectory, stabilizing fiscal imbalances.
As a last resort, the U.S. could reform entitlement programs, raise taxes, and cut discretionary spending, ensuring that a chaotic sovereign debt crisis is avoided. A poorer country with a less dynamic economy, a higher GDP/debt ratio and a much higher tax burden simply doesn’t have the same margin of error or fiscal wiggle room.
This bill will demonstrate that the U.S. can still implement substantial spending cuts, which may, counterintuitively, reassure bond markets. Over the past quarter-century, Congress has only passed revenue-reduction bills—either through tax cuts or increased spending. Even the Budget Control Act of 2011 was an attempt to contain future growth in discretionary spending via caps and sequestration, but it didn’t result in real, immediate cuts.
The Omnibus Reconciliation Bill (OBBB) is expected to enact the largest spending reductions relative to U.S. GDP, cutting $2.5 trillion over a 10-year period. However, due to the cumulative effect of various tax cuts, the bill will add $2.5 trillion to the primary deficit over the same period.
That said, if signs of concern emerge in the U.S. bond market in the coming years, some of these tax cuts could be partially repealed. Previous presidents—Reagan, Bush 41, Clinton and Obama—all raised taxes to generate revenue while maintaining generally lower tax rates amidst fiscal imbalances in the 1980s, 1990s, and 2010s. Reagan’s initial tax cuts were so expensive that his administration later proposed raising taxes to offset some of the initial cuts. By compromising on these offsets, Republicans also gained leverage over a Democratic-controlled Congress, combining tax increases with spending cuts.
Similarly, the OBBB will create positive path dependencies for future Congressional negotiations on deficit reductions by simultaneously lowering both government spending and tax levels. As a result, future agreements will likely involve less aggressive tax increases and deeper spending cuts than they would have otherwise.
22-25, M
