QNB Highlights Major Economic Impact of OBBB Act in the US

QNB said that the One Big, Beautiful Bill (OBBB) act could be a pivotal piece of legislation that lays the groundwork for wide-ranging tax measures, spending programs, and structural reforms with long-term economic implications for the United States.

In its weekly report, QNB noted that while the bill provides a strong boost to the US economy, it comes at the cost of accelerating the debt trajectory and bringing about significant shifts in income distribution.

According to the report, QNB said that history will remember the OBBB as one of the most impactful and transformative initiatives of President Trump’s second term. The nearly 900-page bill was the result of months of tough negotiations and political maneuvering in Congress, eventually passing by narrow margins (51 to 50 in the Senate and 218 to 214 in the House) before being signed into law by President Trump on Jul. 4, US Independence Day.

The note said that the law introduces major changes to the US tax code in the form of expanding tax cuts for high-income individuals and corporations, reducing funding for social safety net programs, and reprioritizing spending. These reforms have sparked intense debate regarding their distributive effects and long-term sustainability. Given its size and scope, the OBBB has far-reaching macroeconomic implications.

QNB analyzed the legislation’s main features across three key dimensions. First, it is expected to have a clearly expansionary effect on the economy over the next decade. According to the Congressional Budget Office (CBO), real GDP is projected to increase by an average of 0.5% between 2025 and 2034 compared to a baseline without the bill, a meaningful uplift considering the average annual growth rate in the US over the past 20 years has been just 2.2%.

In the short term, the economic impact will be even greater, with GDP expected to grow by 0.9% in 2026. This early boost will mainly stem from increased aggregate demand due to higher disposable income among wealthier households and investment-stimulating provisions. After 2026, lower tax rates are expected to improve labor incentives, increasing workforce participation and hours worked, thereby further enhancing growth. Overall, the bill is expected to deliver a significant and positive economic push through multiple growth mechanisms.

The second dimension involves the bill’s substantial impact on the US federal budget deficit and debt trajectory. The legislation includes several measures that strain public finances, such as extending tax cuts, reducing corporate tax revenue, and expanding deductions. While it also features some spending cuts, mainly targeting entitlement programs and social safety nets, these are relatively modest.

As a result, the Qatari bank concludes that large increase in US Treasury debt issuance will test the global market's appetite, and predicted that it is likely to push interest rates higher, as greater supply of Treasuries will depress bond prices and raise yields.

The third dimension relates to income redistribution. Through multiple channels, the net distributional impact of the OBBB is regressive, as it benefits high-income households while reducing support for low-income ones. Specifically, families in the bottom 20% of the income distribution are expected to lose around $560 per year, equivalent to roughly 2.3% of their after-tax income. These losses will mainly result from cuts to medical assistance programs and safety nets like the Supplemental Nutrition Assistance Program (SNAP).

In contrast, higher-income households will be less affected by cuts to welfare and healthcare, but will benefit significantly from the extension of provisions in the Tax Cuts and Jobs Act (TCJA), which includes lower tax rates and higher deductions and exemptions.

(QNA)