Some banks say Trump's 'big, beautiful bill' will be a boon for the U.S. economy

CNBC

01-07-2025

U.S. President Donald Trump's "big, beautiful bill" — or officially, the One Big Beautiful Bill Act (OBBBA) — is a controversial piece of legislation, but some banks are in favor of it, saying it's the shot in the arm the economy needs.
It was advanced in a narrow 51-49 vote in the U.S. Senate late Saturday, moving the large spending measure closer to the president's desk.
The bill, which is characterized by sweeping tax reforms and targeted incentives and is forecast to add to the federal deficit, has triggered warnings from credit agencies and drawn criticism.
But some banks say they think the bill could boost the U.S. economy.
In a letter published Sunday, the American Bankers Association it "strongly supports" many provisions within the bill for the "much needed tax relief" they offer.
"I think the OBBB would almost unquestionably be good for the US economy over the next couple of years compared to passing nothing," said David Seif, Nomura's chief economist for developed markets, given that taxes will rise substantially next year following the expiry of many provisions under Trump's 2017 tax bill.
The Tax Cuts and Jobs Act, passed in 2017, includes lower income tax rates, greater child tax credits and generous deductions for businesses. Without Congressional action, many provisions under the act are set to expire by the end of 2025 — a shift analysts said could shrink household consumption and corporate investment. The short-term appeal of the "Big Beautiful Bill"' lies in its ability to avert a sharp fiscal contraction in 2026, they said.
"The most important thing OBBB does for the next few years is renew most of those expiring tax provisions, preventing a major and sudden fiscal contraction from occurring," Seif told CNBC. "Provisions of OBBB allowing for faster business expensing of capital investments may raise investment over the next couple of years, though likely at the expense of investment in later years," he added.
Citi strategists, likewise, said in a note published last Wednesday the passing of the bill will be an economic tailwind. "In the near term, trade deals (UK, China, eventually Japan, India, Europe, etc) and the passing of the (net stimulatory) Big Beautiful Bill in July should improve growth sentiment," they wrote.
Citi also expects that the Federal Reserve will loosen its monetary policy, bolstering growth sentiment, and said "we do not see a bond vigilante moment during 2025/2026 as the BBB delta is largely funded by tariff revenues."
Others, however, flagged serious drawbacks.
The debt load is a central concern for many critics. The nonpartisan Congressional Budget Office projects the BBB will add at least $3 trillion to the federal deficit over the next decade.
Although Morgan Stanley noted in early June that the bill's pro-growth tax provisions may benefit businesses and individuals, as well key equity sectors such as communication services, industrials and energy, it said it could raise concerns about fiscal sustainability.
Similarly, Erica York, vice president of federal tax policy at Tax Foundation's Center for Federal Tax Policy, said, "It is fiscally irresponsible, significantly increasing budget deficits and debt even when accounting for growth."
York said many of the tax cuts are complicated and poorly designed, giving tax cuts to certain types of workers and leaving others out.
On top of that, because of the bill, which includes many narrowly tailored tax rules, the Internal Revenue Service will need to spend more time and resources updating forms, guidance and enforcement tools, adding to the administrative burden of an already stretched agency, York said.