The fiscal impact of the bill will be big, but it won’t be beautiful

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In Washington, it’s arithmetic versus rhetoric regarding economic issues. Politics may prevail in the short term. But ultimately, as always, math will win out.

“This bill does not add to the deficit,” White House Press Secretary Karoline Leavitt told reporters recently when asked about the domestic-policy bill that passed last week in the House by one vote (with all Republicans but two voting “yes” and all Democrats opposed). “It is the largest savings for any legislation that has ever passed Capitol Hill in our nation’s history.”

That’s “factually inaccurate,” Brett Loper, senior adviser for the Peter G. Peterson Foundation, understatedly said as he named a litany of legitimate entities that have crunched the numbers — including some who believe the legislation could crunch the country someday into a fiscal crisis.

Speaking of his foundation, whose mission is “to increase public awareness of the nature and urgency of the key fiscal challenges threatening America’s future and to accelerate action on them,” Loper added that “from our point of view, the current options that they are contemplating are not wise. They need to first start addressing the problem before making it worse.”

The “problem” is already acute.

The current national debt is about $36 trillion and another $22 trillion is “on autopilot,” Loper said. And an analysis reported in the Wall Street Journal posits that the One Big Beautiful Bill Act would add at least $2.3 trillion through 2034, according to the nonpartisan Congressional Budget Office (other organizations score it even higher).

“I’ve been following the developments not just over the last three months, but really over the last 20 years with an increasing sense of alarm,” said V.V. Chari, a professor in the University of Minnesota’s Department of Economics.

Particularly concerning, continued Chari, is that the spiraling debt comes “at a time of peace and relative prosperity,” not during wartime or very severe recession or depression or other calamity.

“We’re now out of the pandemic,” Chari said. “This is a time for us to pursue perhaps a more responsible fiscal policy, but we seem to be going in exactly the wrong direction.”

An unlikely source also sees a wrong direction: Sen. Josh Hawley, a Missouri Republican who in a New York Times commentary titled “Don’t Cut Medicaid” decried the reverse-Robin Hoodism of the GOP’s “Wall Street Wing” wanting to “get back to the old-time religion: corporate giveaways, preferences for capital and deep cuts to social insurance.”

Alberto Musalem, the president and CEO of the Federal Reserve Bank of St. Louis, is duty-bound to couch his words carefully, as he did during an Economic Club of Minnesota event last week. So while avoiding comment on tariff politics, Musalem said of the effect that “announced tariffs are higher, have been more broadly applied, and have prompted stronger retaliation than I and many others expected.

“Ongoing negotiations with trade partners might dial back tariffs significantly and durably, as we have seen with the recent announcement of a 90-day tariff reduction in reciprocal tariffs with China. However, if a cycle of high tariffs and retaliation is sustained, economic activity and employment are likely to moderate meaningfully over the next few quarters, and inflation is likely to rise.”

The retaliatory cycle alluded to by Musalem reoccurred just three days hence when Trump announced 50% tariffs on goods from the European Union. Then, two days later, he announced a delay until July 9.

As for monetary policy, Musalem said it “is currently well positioned,” and “basic economic activity has moderated in recent months.” Overall, he added, America’s economy “continues to exhibit underlying strength.” But he also said that “the range of possible economic outcomes for the next few quarters is wide. Economic-policy uncertainty is unusually high. Major new trade integration, fiscal and regulatory policies could have a material impact on the economy in different ways and at different times.”

The economic-policy uncertainty accelerated Wednesday when the U.S. Court of International trade ruled against the tariffs, only to have a federal appeals court pause that ruling on Thursday.

Economic data, not political dramas, drive the Fed, which Musalem said “is a totally apolitical organization” that is “squarely focused” on its dual mandate of maximum employment and dual prices. “We do our work entirely on technical merits, meaning on data and on economic arguments. We do not take into account political arguments. It’s already a pretty hard job as it is without bringing politics into it, so we don’t do that.”

Among the data mulled by Musalem and his colleagues is consumer confidence, which has been inconsistent. Perhaps adding to Americans’ uneven economic mood, Moody’s recently became the third of the major ratings agencies to downgrade the country’s sovereign credit rating, stating that “successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.”

The rhetorical emphasis on “successive” suggests a fundamental truth: The debt has been run up by Republicans and Democrats alike over the decades, with both parties lacking the fiscal and political discipline to stop or even slow the spiral.

And the threat that it will spiral further — if not out of control — is heightened by the ugly reality of the big, beautiful bill’s deficit impact.

Chari said that he remains hopeful of an eventual course correction.

“I immigrated to this country because I thought it was a great country; I still think it’s a great country,” the U economist said. “We have been through a lot in the last 250 years. This too shall pass. Sanity will return.” However, he added, “how and when is hard to tell.”

And if not, Chari channeled the late prominent economist Rudi Dornbusch, who when speaking of economic crises famously warned: “In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.”