Can the “Big Beautiful Bill” Actually Lower the Deficit?

For Clients: A Clear-Eyed Look at U.S. Deficits, Taxes, and Spending

In the swirl of debate over the latest “big beautiful bill” — whether it’s infrastructure, healthcare, or economic revitalization — it’s easy to lose sight of a basic question: what actually helps reduce the federal deficit?

You may hear some politicians say, “We’ll cut taxes, and that will increase revenue!” Others argue that we must slash spending to balance the budget. What’s often missing is a clear explanation of how deficits work and what tools are actually effective in managing them.

Here’s a client-focused, nonpartisan breakdown to help you understand the tradeoffs.

What Is the Deficit, Really?

The federal deficit is the difference between what the government spends and what it collects in taxes in a given year. If it spends more than it collects, the shortfall is borrowed — and added to the national debt.

In theory, there are only two ways to reduce a deficit:

• Raise more revenue (via taxes)
• Spend less (via cuts to programs or interest costs)

But there’s a bit more nuance worth understanding.

Deficits aren’t always bad. In fact, during recessions or national emergencies, running a deficit helps the government support the economy. It acts as a shock absorber: funding unemployment benefits, emergency aid, and stimulus programs that help avoid deeper downturns.

The real concern is running large deficits during good times — when the economy is growing and unemployment is low. That’s the time to reduce deficits and build fiscal resilience.

Does Cutting Taxes Ever Raise Revenue?

This idea comes from the Laffer Curve: the theory that if tax rates are too high, cutting them could encourage enough economic growth to increase tax revenue overall. But here’s the catch: the theory rests on several assumptions — and most of them don’t hold up in today’s reality.

To increase revenue by cutting taxes, all of the following would have to be true:

• That current tax rates are discouraging work, investment, or compliance
• That cutting rates would substantially boost economic activity
• That any new growth would create enough new taxable income to offset the rate cuts
• That tax avoidance or evasion would decline meaningfully

In today’s environment, these assumptions don’t apply:

• The U.S. collects less in taxes as a percentage of GDP than nearly every other developed country
• Labor markets are already tight; marginal tax cuts won’t drive major work increases
• Past U.S. tax cuts (in 1981, 2001, 2017) lowered revenue and increased the deficit

In short: tax cuts almost always widen the deficit, unless accompanied by equivalent spending cuts — and even then, the growth effects are often overstated.

How Do We Compare to Other Countries?

The U.S. is still a low-tax country relative to its peers, even as it runs large and persistent deficits. Modestly increasing revenue — without major political upheaval — could bring us more in line with countries that manage strong public services and more stable finances.

Are Spending Cuts a More Reliable Fix?

Not really — and definitely not on their own.

Many federal spending programs (like Social Security, Medicare, defense) are politically untouchable.

Cutting non-military discretionary spending (like education, infrastructure, or research) often has minimal impact on the deficit but big impacts on growth and well-being.

Deep cuts can even be counterproductive, especially during economic slowdowns.

Sustainable deficit reduction tends to come from balanced adjustments over time — not blunt-force cuts (despite what some budget hawks in the Department of Gratuitous Elimination might try with metaphorical chainsaws).

Also important: most federal spending isn’t even up for annual debate. About 70% of the federal budget is “mandatory” spending on things like Social Security, Medicare, and debt interest. What Congress votes on each year is only a small fraction — the discretionary budget — and half of that is defense.

Why Discretionary Cuts Don’t Cut It

There simply isn’t enough money in discretionary spending to close the deficit — not even close.

About 70% of the federal budget is “mandatory,” already committed to Social Security, Medicare, and interest on the debt. Half of the remaining 30% is defense. That leaves a tiny slice — non-defense discretionary spending — to cover everything else: education, housing, public health, transportation, research, the environment.

Even eliminating all of that wouldn’t erase the deficit. And if taxes are cut further (or even held flat), the gap only widens.

You can’t fix a multi-trillion-dollar hole by hacking away at the 6% of the budget that funds everything outside entitlements and defense. That’s not strategy — that’s theater.

Cutting discretionary programs alone can’t eliminate the deficit. It’s like trying to fix a mortgage problem by canceling Netflix.

What Actually Helps Reduce the Deficit?

Let’s skip the slogans and focus on tools that actually work:

• Closing tax loopholes (especially for corporations and very high earners)
• Increasing IRS enforcement to reduce tax evasion
• Modest rate adjustments on income or capital gains
• Sustainable growth: policies that increase employment and wages
• Targeted spending that has long-term payoff (education, infrastructure)

These steps don’t require radical change. They don’t eliminate the deficit overnight — but they do move us in the right direction.

When the Fix Is a Time Bomb

This bill probably won’t reduce Medicaid spending today — and that’s the point.

Instead, it plants a delayed policy landmine by adding onerous work requirements designed to quietly shrink enrollment over time. It doesn’t say “we’re cutting Medicaid,” but it creates a maze of red tape that pushes eligible people off the program — not because they no longer qualify, but because they can’t jump through the bureaucratic hoops.

And here’s the especially sneaky part: Medicaid is part of mandatory spending, which means its funding is automatic — not debated every year like discretionary programs. Work requirements don’t change the underlying entitlement — they simply undermine the automatic funding by reducing participation through barriers.

The projected “savings” — and the real damage to citizens — don’t show up until years down the line, after many of the bill’s champions have left office.

This isn’t a serious attempt at deficit reduction. It’s budgetary misdirection — an illusion of fiscal responsibility that shifts costs onto vulnerable people while claiming progress that never really arrives.

Ask How

The next time you hear someone promise that the “big beautiful bill” will pay for itself, ask how. Most of the time, if we want to reduce the deficit, we’ll need to combine credible tax policy with spending that actually delivers long-term value — not delayed cuts dressed up to look like discipline.