10 Things to Look Out For After the 2025 Reconciliation Law
Earlier this month, the President signed the 2025 reconciliation law – also known as the “One Big Beautiful Bill Act” (OBBBA). The law extended and expanded the expiring portions of the 2017 tax cuts while boosting defense and immigration spending and partially offsetting the cost with savings from energy tax credits, health care, higher education, and other areas . Below are 10 items we’ll be looking for following the enactment of OBBBA from its fiscal and economic effects.
- Do Deficits Decline as Claimed? Although the reconciliation law is estimated to increase debt by over $4 trillion through 2034, advocates claim it will largely pay for itself through the dynamic feedback from faster economic growth. Including the effects of tariffs and regulatory reform, the Council of Economic Advisers projects deficits will remain about $1.6 trillion per year through 2028 and fall to less than $1.5 trillion by 2034 while debt will gradually fall to 94 percent of GDP by 2034. We’ll be tracking where deficits and debt end up.
- Does Long-Term Economic Growth Significantly Accelerate? The Fiscal Year (FY) 2025 concurrent budget resolution assumes real (inflation-adjusted) economic growth will average 2.6 percent per year for at least a decade, while CEA projects real growth will average 2.8 percent. Most forecasters expect a short-term ‘sugar high’ that will largely fade, with growth over the next decade averaging closer to 2 percent per year. We’ll be tracking the actual changes in economic output.
- Do Bill Supporters Tout Large Tax Cuts Despite Insisting They Were Just Current Policy Extensions? Many proponents of the reconciliation law claim that it did not add to deficits because it was an extension of “current policy” and thus had no cost (though the costs were not recognized when the tax law was first passed.) At the same time, the White House is claiming this is the “largest tax cut in history.” It cannot be both. We remind those Members of Congress who claimed this should not be scored as a tax cut that changing their tune to claim that it was would not be consistent or credible.
- Do IRA Tax Credits Phase Out as Scheduled? The reconciliation law includes $540 billion of savings through 2034 by phasing out most of the energy- and environmental-related tax credits enacted under the Inflation Reduction Act (IRA). The earliest phase-outs are scheduled to begin on September 30, 2025, but others will begin phasing out at the end of 2025, halfway through 2026, and – most significantly – the clean electricity production and investment tax credits will phase out only for facilities placed in service after 2027. These phase-outs should not be delayed or canceled absent an adequate replacement that results in even more savings.
- Do the Medicaid and SNAP Reforms Take Effect? The reconciliation law includes $1.1 trillion of health care savings and nearly $200 billion of SNAP (food stamp) savings. While some of the savings will begin next year, much of the savings starts phasing in in 2027, with the Medicaid work requirements and tightening of provider tax limits going into effect that year. Some lawmakers have already proposed repealing some of these offsets. These savings should not be delayed or cancelled, unless lawmakers include a sufficient replacement that results in even more savings.
- Is There a Second Reconciliation Bill, As Promised? Some Members of Congress who voted for the reconciliation law claim that their support was contingent on the promise of a second reconciliation bill that would include additional spending cuts and reduce deficits. The Republican Study Committee in the House has launched a working group to discuss a second reconciliation effort. There should absolutely be a second reconciliation bill that contains only savings, ideally enough to offset the deficit impacts of the first reconciliation bill.
- Are Temporary Tax Cuts and Spending Extended Without Offsets? The reconciliation law reduces taxes on tips, overtime pay, seniors, auto loans, and factory investment through 2028 and increases the cap on the state and local tax (SALT) deduction through 2029. It also massively expands compensation for radiation exposure and authorizes contributions to “Trump Accounts” through 2028, while establishing a new $10 billion per-year rural hospital fund through 2030. Making these temporary provisions permanent would cost about $150 billion per year. Lawmakers should let these provisions expire as scheduled, or else fully offset any extension – ideally using “Super PAYGO” so that offsets are larger than costs. There is no good reason to deficit-finance extensions, and trying to use the “current policy” gimmick to justify the extension would be highly irresponsible and hypocritical given the numbers currently used.
- Do One-Time Appropriations Get ‘Built into the Baseline’? The reconciliation law includes about $370 billion of one-time appropriations for defense, border security, immigration, and other purposes. Most of these funds must be spent by the end of FY 2029. Although these funds are mandatory, they closely resemble some discretionary funds appropriated each year, and appropriators may use them to backfill normal annual spending. Congress should not build these funds into their assumed ordinary appropriations and boost appropriations spending beyond 2028 to continue this funding. We estimate doing so would cost at least $400 billion through 2034 and potentially much more.
- Will Future Reconciliation Bills Circumvent the Byrd Rule? The Senate Byrd rule forbids reconciliation bills from adding to long-term deficits. To circumvent this rule, the Senate allowed the Chairman of the Budget Committee to incorporate a score based on the “current policy” gimmick, rather than normal current law scorekeeping – asserting that there was no fiscal impact associated with extending temporary provisions from the 2017 tax law. Future Congresses should not use the same current policy gimmick to circumvent the Byrd rule or any other gimmicks that weaken the fiscal constraints of reconciliation, and they should not go further in abusing the authority to insert a directed score.
- How Many of the Bill’s Supporters Will Refuse to Support a Future Debt Limit Increase, Citing Fiscal Concerns? The reconciliation law included a $5 trillion increase in the debt limit. While it was important to raise the debt limit and avoid default, previous debt limit increases have been paired with fiscal reforms that improve the fiscal situation, most recently with the 2023 Fiscal Responsibility Act. Furthermore, some Members of Congress who voted for this bill (including its debt limit increase) had never voted to increase the debt limit in prior years, citing the nation’s fiscal health and their unease with condoning further borrowing. Those who voted for this bill thus voted to increase the debt limit by $5 trillion and increase projected debt by a further $4 trillion.
As we wrote after the reconciliation law’s passage, adding more than $4 trillion to the debt – especially given our current unsustainable fiscal situation – was fiscally reckless. Proponents of the law have made substantial assertions on its potential benefits, and we will be tracking the data to see whether those claims become reality. Regardless, policymakers should turn towards putting in place fiscal reforms that reduce deficits, secure our trust funds, and leave future generations with a sustainable national debt.
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