Source: NYT, July 6, 2025.
The OBBB alters the path of deficits relative to current law by a substantial amount, but not too much relative to current policy. However, the composition of overall spending and taxes is altered considerably relative to both current law and current policy. Relative to current law:
Source: G. Elliott Morris.
So the tax cuts are expanded — as are expenditures for Homeland Security (think ICE), as expenditures for the social safety net are reduced. If you’ve never worried about losing your health care, this won’t mean much to you…but it will mean a lot to both lower income and working middle class households.
Hence, while on pure fiscal expenditure terms (one can think of transfers and taxes as inverses of each in a simple Keynesian aggregate demand context), one might think of OBBB as broadly neutral relative to current policy in the short term (cuts and tax increases are back loaded past the midterms), I’d say they will raise uncertainty and anxiety a lot for a certain portion of households. The rational response will be to cut consumption. The lowest 33% of the income distribution is already feeling pretty gloomy.
Figure 1: Expected financial situation in 1 year, bottom 3rd income distribution (blue). Source: University of Michigan Survey of Consumers.
When the hospitals start closing and Medicaid funding falls (along with Medicare, given Paygo rules), one can guess what will happen. This combined with regressive taxes (called tariffs) and it’s hard to see GDP growing rapidly in the next year, despite NEC Director Hassett’s forecast (Fox):
“You’re looking at 4 percent growth, which I think is an upside that is completely possible.”
Hassett on TV today: “5 million of whose who lose Medicaid have two types of insurance so if they lose one they’ll still have the other.”
He’s referring to indigent elderly in nursing homes who due to their age may have both Medicare and Medicaid coverage. Medicare pays for short term care and Medicaid pays for long term care. Medicare requires co-pays. Medicaid is means tested for both income and assets. If they lose their Medicaid, their Medicare coverage expires after 100 days. Then they are kicked out of their nursing home.
This notion that old people have wasteful double coverage is horrific. The coverages complement each other and don’t overlap or substitute for each other.
And Hassett says it with that stupid s..t-eating grin on his face. Hassett is a disgusting monster.
One issue I have not seen discussed anywhere is how the spending increase for ICE was arrived at. Was there a serious exercise in determining goals and what was needed to reach those goals? If so, whatare those goals?
The felon-in-chief seems to change his immigration policy day by day, so I doubt any actual goals were set down on paper when the budget request was written. Other than “lots of goons who’ll erode civil liberties”, do we know what we’re paying for?
What are those goals for ICE? They are Trump’s personal domestic army of brown shirts, loyal only to him and hampered by no pesky Uniform Code of Military Justice.
They are getting their budget nearly quadrupled from $8 billion to $30 billion. That buys a lot of brown shirt corps.
Expect lots more demonstrations like they did today in McArthur Park in LA, with hundreds of troops, mounted cavalry, and army assault vehicles. According to their own press release this was a “show of presence” to demonstrate their “freedom of maneuver” inside a US city. This is the language a foreign military invasion force uses.
This is Germany in 1933. Everyone needs to ask themselves what they would have done if they had been there for the rise of Nazism.
I think Paul Craig roberts has made a comeback. Yuge growth from the BBB.