The Big Beautiful Bill

There are a lot of funny indicators in this world. The Waffle House Index is a real index that measures where Waffle Houses are still closed to track hurricane recovery. The Pentagon Pizza Index is a less legitimate (but still valid) indicator of people working late at the Pentagon and other agencies in D.C. If people are working late… that may indicate a crisis is brewing. Tonight (June 11th) the Pizza Index is spiking as tension in the Middle East rises. I wonder if the developers of Google Map’s Live Activity Tracker had any idea what they created…

The One Big Beautiful Bill Act passed through the House of Representatives last month with a close 215-214-1 vote. For Republicans, two voted against it, one voted present, and two didn’t vote. All Democrats voted against the bill. 

Three Democratic representatives, all 70 or older, died in 2025. If they were alive, the bill in its current form would not have passed. Honestly, it’s just ironic at this point. I am excited to see who runs for those seats… if they are under 60, I will be shocked.

So, first of all, the bill that passed the House of Representatives will not be the same bill that passes the Senate. In our wonderful system of government, the Senate can pretty much change everything inside the bill, keep the name, and send it to the President without sending it back to the House. These details are based on the bill that the Senate received.

The Debt - Deficit Issue

Actually kind of similar to the Pam - Pamm issue, there is some debate on how to analyze a bill’s impact. I am going to sprinkle in graphs provided by Representative Thomas Massie. His twitter is a great follow. 

The Congressional Budget Office estimates that the Bill will increase the deficit over the ten year period by $2.4 trillion due to $3.7 trillion in reduced revenue (Trump Tax Cuts) and only $1.3 trillion in spending cuts. 

When you compare this bill to a baseline of doing nothing (letting the Trump Tax Cuts expire), the bill adds billions to the deficit each year.

However, there are two important caveats to the CBO analysis: this excludes macroeconomic impacts and uses a “current law” analysis. 

In their analysis, the CBO does not try to guess how the bill will impact economic growth. This analysis uses a static score to gauge the impact.

So let’s include a booming economy for the next ten years.

The deficit increases for the first four years then starts to shrink! 

More importantly, in this analysis, the CBO uses a “current law” principle to assess debt impacts. The current Trump Tax Cuts expire at the end of this year. This bill makes these tax cuts permanent. The CBO therefore adds the tax cuts into the reduced revenue projections. 

Supporters of the bill argue that congress would extend these tax cuts regardless. We shouldn’t blame the bill for these tax cuts just because it’s in them. The extension is inevitable.

So when the CBO says the bill decreases revenue by $3.7 trillion, that includes the impact of extending the current tax bill. Let’s remove that impact and keep the economic impact!

Big deficit reduction!

Oh, there is one small issue with this analysis. The One Big Beautiful Bill has the long promised “no tax on tips and overtime” cuts. They are only in effect for three years… The above analysis assumes those will expire. Which is kind of ironic… supporters of this bill want to assume the Trump Tax Cuts would have been made permanent but also assume tips and overtime won’t be made permanent. 

So let’s apply a consistent framework. Let’s assume a booming economy, remove the impact of the Trump Tax Cuts, and assume that no tax on tips will be made permanent. 

The striped bar is deficit impacts with permanent tax cuts to tips and overtime. Increased deficit every year.

The one consistent thing across all analysis? Increased deficit for the next three years. What happens in 2026 and 2028? Elections. The odds of the house flipping to Democrat control are high based purely on the past 20 years of elections. I don’t believe this bill, if passed, will stay in place for more than four years. Which means the spending cuts promised in four years likely won’t happen.

My genuinely unpopular opinion: we need to raise taxes AND cut spending in year 1. We need a bill that balances our budget without “schizophrenic math and rosy economic assumptions.” 

Other Things

I have gone on far too long about the tax cuts and different ways to account for the deficit. So I am going to land the plane.

This bill also rolls back regulatory requirements, cuts programs from the Inflation Reduction Act, and cuts spending to Medicare and Medicaid.

The bill is still stuck in the Senate as more deficit hawks try to grapple with the reality of this bill.

Trump wants to finish it by July 4th… it will be a bumpy ride. 

Debrief on Deck

Next week, we are going to talk about Target Date Funds which are possibly the best single product on the market for risk averse investors looking to follow classical principles.

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on Instagram.

Until then, stay the course.

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