The Math of the One Big Beautiful Bill

Mark G. Sheppard
June 29, 2025

Passing H.R. 1, the One Big Beautiful Bill, and clearing the vote threshold remains difficult for conservatives because the exact number of votes needed is somewhat challenged and even under lower threshold requirements the conservative coalition face opposing pressures. While the political future of the bill remains outstanding, evaluating the policy impact is also difficult as many of the analyses about the cost vary considerably, particularly the gap in deficit estimates, which mostly stems from different growth assumptions—because small tweaks to underlying economic parameters can swing the cost projections dramatically.

Congressional Republicans have advanced a tax bill to the U.S. Senate, analysis by the Congressional Budget Office would rank as the most regressive tax reform in decades, at a time when the overall economy seems fairly weak, internal congressional politics appear rather thin, and most Americans remain deeply concerned about an already regressive economy. Congressional cosponsors argue the bill informs long-run growth and reduces the deficit. As the Senate considers the One Big Beautiful Bill, widely criticized by economists as legislation that would disproportionately benefit upper-incomes at the expense of low and moderate income families. The Senate Republican majority remains tentative, with H.R. 1 advancing under budget-reconciliation rules, the bill can pass with a simple majority, with very little room for dissent.

Supporters argue that H.R. 1 increases long-run GDP and recoups significant static cost, delivers a marginal after-tax income bump to every quintile in the first two years, raising real wages through a lower corporate rate, spurs small-business investment via full expensing, and leaves debt-to-GDP slightly below the current-law path thanks to growth and back-loaded offsets. Opponents argue the bill would increase the deficit and shift the tax burden to moderate income households, proponents argue that the legislation would lower the deficit by reducing wasteful spending, that disagreement largely centers on different growth projections. While supporters and critics agree on the upfront cost of the bill, the numerical disagreement regarding the deficit relies on opposing GDP-growth assumptions, which leads supporters to project a deficit drop and opponents to predict a deficit increase.

The One Big Beautiful Bill has a target date of July 4th for a floor vote, though ongoing negotiations make the exact date unclear. With no Byrd-rule ruling yet, H.R. 1 remains a reconciliation bill needing only a simple majority to pass, though any part the Parliamentarian later flags as extraneous must be dropped or win a 60-vote waiver. Assuming the bill is advanced in its present form, with the current senate composition of 53-47, Republicans can only afford to lose 4 votes which may be tenuous considering that some members have already voiced concern, to pass leadership must satisfy both moderates and fiscal conservatives.

Following another month of somewhat negligible jobs data the Business Cycle Dating committee at the National Bureau of Economic Research, the group tasked with designating a recession, has not scheduled a formal meeting, which signals a cautionary reading of any potential downturn. Recent jobs data have delayed any official recessionary designations. While Americans still rank economic issues as the most important policy priority, survey data shows that most households have long concluded the economy is “bad.”

Long-running structural problems—stagnant real wages for most workers, regionally uneven job growth, and widening household-wealth gaps—have left millions to conclude that the benefits of any expansion never reached moderate-income households. Those weaknesses are visible in under-employment data, the U-6 rate, and in the stubbornly low labor-force participation of prime-age men, both of which remain well below pre-pandemic peaks. Even with headline unemployment flat, those deeper measures suggest slack that traditional indicators can miss—yet they are precisely the conditions economic stabilizers should target.

In terms of policy, H.R. 1 moves in the opposite direction. Non-partisan analyses show the largest permanent tax reductions in the One Big Beautiful Bill accrue to the top quintile, while many low-income households see either marginal gains or, after temporary credits expire, net tax increases. Because the plan, in order to remain roughly budget neutral, also pares back Medicaid and trims refundable credits tied to work hours, the legislation risks tightening the very household budgets that first register downturns when hours are cut. In short, the distributional tilt of the legislation intersects uncomfortably with the labor-market asymmetries that research identifies as early-warning signals.

Turning-point analysis shows mounting uncertainty, under-employment rising and the yield curve deteriorating, even as the headline jobless rate stays low. Fiscal capacity is not the only concern; policy timing matters too. With forward-looking GDP and sentiment gauges drifting down and inflation expectations edging up, most forecasters recommend a neutral or mildly counter-cyclical stance—keeping dollars in the hands of consumers most likely to spend them. A regressive cut financed by deficit expansion offers limited near-term demand support while increasing long-term rollover risk; it may also leave Congress with less room to act if a recession materializes, because the easiest revenue levers will already have been pulled.

Taken together, the bill neither addresses the chronic fragilities in the labor market nor builds the automatic stabilizers that could cushion the next shock, right as researchers have become concerned about a downturn. The legislation might satisfy a political preference for lower top-line tax rates on upper-incomes, but the bill does so by exposing the economy’s still-vulnerable middle and lower tiers to greater volatility. Given the Senate’s paper-thin margin and the country’s equally thin patience for policies perceived as one-sided, the question is no longer whether H.R. 1 can pass, but whether it meaningfully advances the mandate voters set: an economy that feels fair, resilient, and broadly shared. Whether the bill meets voter expectations for a fair and resilient economy could hinge on how these competing forecasts play out.

The Math of the One Big Beautiful Bill2025-06-30T01:12:46+00:00

The Election That Economists Lost

Mark G. Sheppard
February 25, 2025

In October, prior to the election, The Economist, arguably the most popular economic weekly journal, published an article entitled “America’s economy is bigger and better than ever”, this basic sentiment of topline success was echoed by a number of institutions from the Federal Reserve to BlueChip, from the OECD to a survey of top economists, and more. There was broad agreement among economists that the economy was doing fairly well, which generally bodes well for a presidential re-election bid, however the incumbent party not only lost the election, but the incumbent president was pushed out of the general election over falling polling numbers, largely informed by rising economic discontent. The topline economic figures were somewhat at odds with how voters and consumers experienced the economy. Survey data showed affordability concerns, specifically the gap between wages and prices, were a top priority.

Economists, including almost all living Nobel laureates, broadly supported Kamala Harris in an election that Donald Trump won handedly. That academic support was largely informed by economic policy preferences, but also of a descriptive political model that simply undervalued how discontent voters were with the economy. In the lead up to the election, while affordability concerns remained paramount for many American voters, economists spent months praising topline figures such as GDP, unemployment, inflation, and other metrics. Election modelers discounted the degree to which the economic fundamentals would downweigh the polls, producing estimates that showed a much tighter race; And economists were reluctant to acknowledge the extent to which —and the parts of— the economy that would matter in the election.

Right before the election, noted political statistician Nate Silver sounded the alarm that concerns over the economy could be informative in the election, by posting preliminary regression results of inflation and a shift in the polls, which were pretty widely criticized by economists mostly on the grounds that the underlying methodology would otherwise fall below academic publishing standards. And while the economists were probably technically right in that pushback —so was the basic intuition in the regression. The economic fundamentals were deeply unfavorable for an incumbent re-election bid. Interestingly, calibrating the exact amount that the economy could and would politically matter has been done in the past, but election modelers seemed hesitant to include those parameters.

Election models rely primarily on polling aggregation, and while many models performed well enough, the main issue in the modeling was two-fold: firstly, polls were about as wrong as they normally are, and secondly, the economy mattered more than the models factored-in. For politicians, pollsters, and economists looking to make sense of this rightward shift, voters were fairly clear in communicating economic discontent. And though pollsters were basically right, political forecasters could have anticipated the shift if traditional economic indicators were built-in.

Though inflation received much of the consideration in the aftermath of the election, long-run wage trends are also poor, with almost half of Americans earn less than a livable wage. Collectively, rising cost and stagnate wages are the main components of the growing affordability crisis. Recent gains in wages have been highlighted by economists interested in supporting recent policy successes, but the long run trends are mostly flat, which matter more to voters. From the ballooning housing-to-income ratio to the rising credit card delinquency rates, there is simply no shortage of concerning indicators.  

As the new administration begins its second term, inflation remains stubborn, consumer confidence remains troubled, and the underlying affordability issues will likely linger. Political strategists and pundits have been struggling to make sense of the rising non-white block of new conservative voters, but frustration with an unaffordable economy explains the diversity shift in the crosstabs, as inflation affects voters of all groups. However, issue polling and various statewide proposition results show most people broadly agree with the progressive policies that economists are endorsing, but voters are still clearly disagreeing with the economists on the state of the economy. Put simply, from the perspective of voters, an improving economy that is ‘technically better than peer countries’ is not a “good economy.” Looking ahead, political forecasters should remember that the economy matters in elections, and what matters most is not the aggregate statistics but rather how people experience the economy; Economists should learn this lesson too.

The Election That Economists Lost2025-02-25T04:07:13+00:00

New York City Employment Recovery Complete, but Uneven across Industries

Khaled Eltokhy and James Orr
January 20, 2025

By the start of 2024 New York City employment had reached its pre-pandemic level of 4.7 million jobs, and more than 55,000 new jobs were added through November.  The city’s recovery from the significant pandemic-related disruptions defied some predictions though several city industries continue to face challenges.  In this post we look at the industries leading the recovery and expansion of jobs, including the traditionally strong Healthcare and Professional and Business Services industries, along with Finance.  We also look at industries where job counts have not yet recovered, including Retail Trade where the adverse effects of efforts to control the pandemic, as well as the increase in remote work, continue to have an impact.  We then point to a number of factors that could impact the growth of city employment this year.      

Employment Recovery in the Nation, New York State and New York City
New York was the epicenter of the Covid-19 pandemic.  In the space of a few months in early 2020 there was a staggering loss of life in New York City and the efforts to contain the spread of the virus lead to the loss of over 950,000 jobs—approximately 20% of overall city employment.  A significant number of deaths and job losses also occurred in other parts of the downstate area and upstate New York, as well as across the nation.  

Figure 1 traces out the downturn and recovery of jobs in the nation, New York State and New York City.  Nationally, the impact was substantial but less severe than that in the state or city.  It took the state and city about four years to regain their pre-pandemic employment levels.  


The recovery of employment has returned the unemployment rate in New York to roughly pre-pandemic levels.  Figure 2 below shows the sharp rise in rates at the onset of the pandemic and their subsequent gradual reduction in the nation and in New York State and City.  Unemployment rates in the city have ticked up recently and are now slightly above their year-ago levels.


Both the pandemic-related employment losses and the pattern of employment recovery have varied across industries.  In Figure 3, the Healthcare and Social Assistance industry is shown to have had a relatively mild employment downturn and one of the strongest recoveries.  The industry had been expanding prior to the pandemic and after some initial job losses employment continued to grow in part to meet the demand for pandemic-related services.  Jobs here continue to grow with a sizeable share of the job growth in the home health care segment of the industry.  Currently, the workforce is about 20 % larger than in early 2020. 

                                                       
Two office-using industries—Professional and Business Services and Finance and Insurance, which directly account for more than one million jobs in the city—saw relatively mild downturns and relatively rapid recoveries.  Unlike the personal services industries, many of the occupations here do not require a lot of face-to-face interactions which allows workers to work remotely.   Employment counts in the Professional and Business Services industry have only edged up recently while job counts in Finance and Insurance have seen a bit stronger growth.  In the securities sector, or Wall Street, employment declined only slightly with the onset of the pandemic and has held fairly steady since then.  Employment stability in this sector is critical: as of 2024, average annual incomes are approximately $470,000, and the sector generates over 15% of all earnings in the city.  

Both the Retail Trade and the Accommodation and Food Service industries saw large employment declines at the onset of the pandemic.  There is little substitute for face-to-face interactions here and the effective shutdown of the city to help prevent the spread of the virus took a huge toll.  Employment in the Accommodation and Food Service industry has seen fairly steady growth, though not yet sufficient to regain the lost jobs.  Employment in the Retail Trade industry continues flat to down.  Prior to the pandemic jobs in several segments of the industry were declining and the pandemic-related declines in foot traffic due to remote working and the lack of tourists further eroded employment.  The recovery has brought a return to employment in 
several sectors, such as grocery stores, but e-commerce trends appear to be a factor stunting the recovery in sectors such as department stores.

A comparison of average employment levels in the period September to November this year with the similar period in 2019 shows some interesting job developments in the city.  Job gains in the two transportation-related industries in Figure 4 below may not be at all surprising to residents and visitors.  


The air transportation industry in New York City now employs almost 3,000 more workers than it did prior to the pandemic.   The sector includes workers in airlines, airport operations, and airport enterprises, and passenger traffic at the region’s airports is up over its 2019 levels.  Couriers and Messengers also saw employment surpass 2019 job counts.  Workers here are engaged in delivering documents and packages and they may use bicycles, motor vehicles or public transportation.  Employment in a third industry, Building Construction, has not yet reached its pre-pandemic level.  This may be surprising to those out and about in the city as new construction and renovations certainly seem to be omnipresent.  

A Closer Look at Residents, Office Workers and Visitors
There are likely now fewer people in New York City on any given day than before the pandemic.  As the Covid-19 epidemic spread in New York City in early 2020, a number of residents opted to move out of the city.  The latest estimates, July 2023, show 8.26 million residents currently in the city, a decrease of about 546.000 since the 2020 Census estimate, with the decline driven largely by these early movers.  (These estimates exclude the increase in New York City’s shelter population in 2022 and 2023).  While the net flow of residents out of the city continues, it has returned to its pre-pandemic volume, similarly with net international migration to the city.  As a result, population losses have slowed considerably.  

While the number of office jobs in the city now roughly matches or exceeds pre-pandemic levels, working remotely is a common feature of many of these jobs.  One survey finds attendance in offices to be 72 percent of pre-pandemic levels and another measure similarly shows office visits are now about 80 percent of pre-pandemic levels.  On this measure, each office worker is now out of the office on average one additional day each week. One direct effect is reflected in the high office vacancy rates in Midtown and Downtown Manhattan, and fewer workers in offices has also had negative effects on activity in nearby restaurants and retail businesses.   

The figure below shows the city to still be a magnet for tourists.  


 After declining sharply during the pandemic, the number of both domestic and international tourists has rebounded. Spending by these visitors is crucial for multiple industries, particularly retail, and leisure and hospitality.  While hotel occupancy rates have improved significantly, the number of tourists visiting the city in 2024 is still below its pre-pandemic number.  The forecast has the number of tourists matching pre-pandemic levels this year.  

Looking Beyond the Recovery
Employment in New York City is expected to grow but at a somewhat slower pace over the next several years.  Even with this job growth, an ongoing issue is how many of the office workers will come into the city to work each day.  A recovery to pre-pandemic levels would help several sectors, particularly Retail Trade, and some major firms have called for a return to a five-day week.  However, a hybrid of home and office work appears to be a common office model.  

A number of national factors are likely to affect the jobs picture in 2025.  One is the potential impacts of the policies of the new administration.  There is not enough information now to evaluate their impact, but potential changes to immigration policy, tax policies, and the amount and composition of Federal spending will likely affect the trajectory of city employment.

Local issues will have an impact as well.  New York City just implemented a congestion pricing plan for the Manhattan Central Business District.  The goals of the plan include easing traffic and improving air quality and using the revenue to support public transportation.   The plan has been controversial and its costs and benefits will begin to play out this year.  

The city will also have to continue to address the issues surrounding the more than 200,000 asylum seekers who have arrived in New York City since April 2022.  Under its “right to shelter” mandate, the city must provide housing and basic services to those without homes. Currently, the city is providing shelter and services to approximately 65,000 asylum seekers.  A recent report shows the city recorded expenditures of $5.2 billion in FY 2023 and 2024.  Aside from the consideration of costs, it should also be noted that immigrants have historically always been a part of the New York City economy.  Immigrants currently make up 36 percent of city residents and 43 percent of the city’s workforce.   Analysts argue that new arrivals could help to bolster the city’s workforce and contribute to the economic recovery, and they urge the Federal government to do more to help the cities around the country that welcome new arrivals. 

 

New York City Employment Recovery Complete, but Uneven across Industries2025-01-21T00:06:11+00:00

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