America’s Economic Sugar Rush
Stimulus Today, Cuts Tomorrow, Crisis by 2028
On July 4th, Independence Day, President Trump signed what he called the “One Big Beautiful Bill” into law on the South Lawn of the White House. He declared that “our country is going to be a rocket ship economically.”
Less than two weeks later, the economic forecasting establishment responded with a collective shrug. Mark Zandi of Moody’s Analytics delivered the verdict with brutal clarity: “The GDP effects are on the margin. It adds a little to GDP growth in 2026 but over the longer run… it’s a wash.”
The bill itself reads like a fascinating exercise in political coalition-building masquerading as economic policy. At its core, it extends Trump’s 2017 tax cuts that were set to expire, tosses in some populist sweeteners like eliminating taxes on tips and overtime pay, then tries to pay for it all by making deep cuts to social safety net programs.
It’s the kind of legislative package that sounds great in a campaign ad but looks increasingly problematic when you actually run the numbers.
The tax provisions reveal where political strategy crashes into economic limits. Eliminating taxes on tips up to $25,000 annually and overtime pay up to $12,500 is politically popular, especially among service industry workers who’ve felt the squeeze of inflation over the past few years.
The expansion of the state and local tax deduction cap from $10,000 to $40,000 offers relief to higher-income earners in blue states — a move that complicates Democratic opposition. Permanent business tax incentives for capital investment provide the kind of supply-side stimulus Republican economists have long championed.
But here’s where the math gets messy.
The Congressional Budget Office estimates that this package will add $3.4 trillion to the national debt over the next decade. That’s neither a rounding error nor an exaggeration. It’s the kind of number that makes bond traders nervous and Federal Reserve officials reach for the antacids.
The Tax Foundation’s dynamic modeling, which takes economic growth into account, still shows a $3.1 trillion revenue reduction from 2025 to 2034. Growth only offsets about 22 percent of the tax cuts.
The spending side of the equation reveals the true political priorities. Deep cuts to Medicaid and SNAP through new work requirements and eligibility restrictions are projected to reduce after-tax income for the poorest 10 percent of households by $1 trillion over the next decade.
Eliminating green energy subsidies from Biden’s Inflation Reduction Act adds another $94 billion in cuts by 2032. These aren’t just accounting adjustments — they represent a major shift in the structure of federal support, moving resources away from lower-income households and toward upper-income ones.
The projected economic impact reflects this tradeoff. Zandi’s model shows a small 0.4 percent boost to growth in 2026, resulting in around 190,000 additional jobs. The Tax Foundation is slightly more optimistic, estimating a 0.8 percentincrease in long-run GDP.
But both agree on the big picture: the benefits are small and short-lived. The costs build over time.
By 2030, Oxford Economics expects GDP to be just 0.1 percent larger than it would have been without the bill. That’s a rounding error, not a rocket ship.
Most of the individual tax benefits expire in 2028. The economic stimulus fades just as the spending cuts start to bite. It’s like giving someone a sugar rush, then taking away their next meal.
The inflation risks are especially concerning in the current environment. With unemployment already low at 4.1 percent, injecting more fiscal stimulus through tax cuts while the economy is near full capacity is a classic recipe for inflation.
Carl Weinberg of High Frequency Economics warned that the bill could force the Federal Reserve to hold interest rates higher or even raise them further, leading to “no incremental GDP growth, higher inflation and much bigger fiscal deficits.” That’s the economic equivalent of stepping on the gas and the brake at the same time.
The distributional effects are crystal clear. High earners benefit from the extension of the 2017 tax cuts and the expanded SALT deduction. Low-income households face a double burden from expiring tax breaks and cuts to programs like Medicaid and SNAP.
Robert Manduca from the University of Michigan pointed to the ripple effects: grocery stores that see less revenue from food stamps may cut staff. Hospitals losing Medicaid funding could close or lay off workers. Those workers will spend less in their local economies. Restaurants, hardware stores, and others will feel the hit.
The $50 billion rural hospital stabilization fund included in the bill is a quiet admission that these Medicaid cuts will cause real damage. But it’s a temporary patch on a larger structural shift.
The debt implications deserve close attention because they expose a gap between the bill’s marketing and its underlying math. Republican lawmakers claim that stronger growth will reduce the deficit. But the numbers don’t support that claim.
The Tax Foundation projects that the debt-to-GDP ratio will rise to 168.0 percent by 2059, compared to a baseline of 162.3 percent. Even under dynamic scoring, the impact on the deficit is reduced by only about one-fifth.
This matters because higher debt tends to push up interest rates. That means slower long-term growth, as more money gets spent on interest and less on investment or productivity. The bond market has already started pricing in higher risk premiums. And the Federal Reserve’s options become more limited when monetary and fiscal policy are working against each other.
The political sustainability of the bill is also in question. Its structure sets up a fiscal cliff in 2028, when most individual tax breaks expire. That timing coincides with the full impact of the spending cuts.
Future lawmakers will have to choose between letting taxes rise sharply, cutting spending even more, or letting deficits explode.
This is a familiar pattern: short-term wins, long-term consequences.
Some defenders of the bill argue that cutting benefits will push people into work and improve long-term outcomes. Adam Michel from the Cato Institute framed it as part of a pro-growth strategy, not a drag on the economy.
But that argument assumes that people losing Medicaid and SNAP will easily find better-paying jobs. Economic research suggests otherwise. These transitions are rarely smooth, especially in vulnerable communities.
The international context makes the stakes even higher. Global supply chains are still fragile. Geopolitical tensions are rising. Adding fiscal uncertainty right now is risky. Cutting green energy subsidies also puts the U.S. behind China and Europe in the race for clean energy investment and jobs.
The irony is that the bill is too small to drive real long-term growth, but too large to avoid serious fiscal consequences. It ends up doing neither what conservative budget hawks want nor what progressive stimulators hope for.
In practice, it satisfies political constituencies while sidestepping real economic challenges.
The real test will come in implementation. Medicaid and SNAP work requirements will create new administrative costs. Green energy subsidy cuts will disrupt existing investment plans. These effects may not show up in neat economic models, but businesses and workers will feel them.
Market reaction so far has been muted. Bond markets seem to have already priced in the fiscal impact. Equity markets appear focused on the short-term consumer boost, not the long-term structural drag.
The economic outlook is likely to match what forecasters predict: a small, short-lived boost followed by a long-term washout, alongside a meaningful increase in fiscal risk.
The real question is whether the political system will be ready when the bill comes due in 2028. Or whether leaders will once again choose to delay the reckoning.
Given the history of American fiscal policy, the odds favor more delay. But compound interest runs on its own schedule. At some point, the math stops giving second chances. With this legislation, the gap between promise and outcome may simply be too large to ignore.