Changes Move Reconciliation Bill in the Wrong Fiscal Direction

The House of Representatives may vote on the reconciliation package, or the “One, Big, Beautiful Bill Act” (OBBBA), this week. House leadership released the first of several expected changes to the bill on Monday that we roughly estimate would increase its deficit impact by about $50 billion and put the bill out of compliance with the Oversight Committee instruction in the Fiscal Year (FY) 2025 Concurrent Budget Resolution. Overall, the bill would add more than $3.3 trillion to the debt over the next decade with interest – including $600 billion in 2027 alone – and add more than $5.2 trillion to the debt through 2034 if made permanent.

While this is just the first of several expected changes – likely including changes to the implementation of Medicaid work requirements, the timing of clean-energy tax credit repeal, and a possible change to the state and local tax (SALT) deduction – these changes unfortunately move the bill in the wrong direction from a fiscal standpoint.

Most significantly, the amended bill would cancel most of the $51 billion in federal worker retirement savings from the original version of the bill, which are used to meet the Oversight Committee’s $50 billion savings floor. Specifically, the bill completely removes a modest increase in federal employee retirement contributions to match employees hired before 2013 with those hired after. It also narrows a provision that would have eliminated the Federal Employee Retirement System “Annuity Supplement” and delays the start date of several other reforms. Taken together, these provisions would reduce the Oversight Committee savings by $30 to $40 billion, to well below its target.

The amended bill also includes a number of other changes that are likely to reduce savings or increase costs associated with the original bill. For example, the amended bill:

• Removes nearly $1 billion of rescissions of unobligated funds for various IRA clean energy projects.
• Eliminates a $4 billion provision that removed the tax exemption for name and logo royalty income earned by nonprofits, including professional sports league associations, universities, and the AARP.
• Removes two new permitting fees for infrastructure projects.
• Adds exemptions for entertainment-related businesses to a provision ending the deduction for employee meals.

To be sure, some changes in the amended bill would reduce the deficit impact – the tax deduction for car loan interest would no longer apply retroactively to 2024 and the bill no longer spends $250 million for the development of a “new armaments cooperation program,” for example. There are also several changes related to various government benefits for non-citizens with an unclear fiscal impact.

Overall, the amendments to OBBBA appear to worsen an already expensive bill – especially by ending bipartisan reforms to the federal worker retirement program. As lawmakers continue to negotiate on the SALT cap and other issues, the bill may become even more costly.

Instead of making changes like these that will worsen the fiscal impact, lawmakers should try to shrink and reverse the $3.3 trillion cost of the bill by identifying additional savings and paring back the bill’s new spending and tax cuts.