I view the Big Beautiful Bill of Trump as one of the most radical experiments in fiscal policy in my lifetime.
In essence, Trump has decided to push all of his chips to the center of the table and bet on the American economy. I would not have proposed this bill, as critics are correct to note that it increases the estimated U.S. debt by $3 to $4 trillion over the next 10 years. That is a massive boost in leverage at a time when America’s fiscal position already appeared unsustainable.
Nonetheless it is worth trying to steelman the Trump decision, and understand when it might pay off. The biggest deficit buster in the bill is the extension—and indeed boost to cuts—in corporate income tax rates. That means more resources for corporations, and stronger incentives to invest. The question is what the American economy can expect to get from that.
Since 1980, returns on resources invested in American corporations have averaged in the 9 to 11 percent range. There is no guarantee such returns will hold in the future, or that they will hold for the extra investment induced by the corporate tax cuts (e.g., maybe companies will just stash the new profits in Treasury bills). Still, an optimist might believe we can get a high rate of return on that money, thereby making America much wealthier and also more fiscally stable.
A second possible ace in the hole is pending improvements in artificial intelligence and their potential economic impact. It is already the case that U.S. productivity has risen over the last few years, and perhaps it will go up some more. That could make our new debt burden more easily affordable.
My view of the fiscal authority—Congress—is that its primary fiduciary duty is to act responsibly. The Big Beautiful Bill is not that. Nonetheless, I am reminded of the classic scene in the 1971 movie Dirty Harry when Clint Eastwood (Harry) asks, “Do I feel lucky?” Here’s to hoping.
Here is the link, there are numerous other interesting contributions, including from Furman, Summers, Scanlon, Salaam and others.
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