by Eric Gaus, Chief Economist at Dodge Construction Network
The One Big Beautiful Bill Act (OBBBA) as signed into law will provide a very modest boost to the economy in the near term but exact a heavy toll on our economic future. The near-term benefit exists because the Senate version of the bill pushed the roll out of most of the cost-cutting measures until after the 2026 mid-terms. There is very little direct impact on the construction industry though, indirectly, the costs and benefits will be felt.
The largest contribution to the economy in the near term is business incentives such as qualified business income deduction, R&D expenses, and qualified opportunity zones (QOZ) renewal. This should spur business activity and could also yield modest longer-run growth through research and development investment and reinvestment of capital gains in opportunity zones. QOZ’s will spur additional construction, but it is not clear how large that impact will be since it depends on investor decision making and those projects will not start until 2027 after the old program expires. The extension of the Tax Cut and Jobs Act (TCJA) will not meaningfully change consumer behaviors because the TCJA extension alone will not create a change in disposable incomes.
The TCJA extension will, however, contribute to expanding budget deficits and thus increasing debt. Other tax changes, such as State and Local Tax (SALT) Cap, Child Tax Credits, and Auto Loan Interest Deductions will also add to the deficit. As written, the CBO estimates that the OBBBA adds $3.4 trillion to deficits over ten years and increases the debt to GDP ratio from around 100% now to about 130% in ten years (117% under current law). The cuts in spending, namely changes to student loan payment plans, phasing out of Inflation Reduction Act (IRA) tax credits, and Medicaid cuts, will reduce the overall cost of the bill, but only by about 30 percent.
By far though, it is the distributional effects that could yield the highest cost for the economy. The Yale Budget Lab, using data from the Congressional Budget Office, estimates that the top decile of income earners will net an increase of 2% of after-tax income (about $12,000 per year) over the next ten years. The lowest income earners will lose more than 3.5 percent (about $1000 per year). Not only will income inequality increase, but so will wealth inequality as the OBBBA also increases the amount of money that is inheritable tax-free.
Income and wealth inequality have been increasing steadily since the 1980’s. Housing affordability during this period has also eroded steadily. By extension, it seems likely that the impact of OBBBA will also trickle into the housing market. Pricing out middle- and lower-income buyers will decrease demand for new single-family housing. The low-income housing tax credit may offset some of the decrease in affordability, but all the moving parts make it hard to assess. The bill may stoke construction of more affordable multi-family housing, but recent history suggests that local zoning laws can be a tough impediment particularly in the areas where there is the largest housing shortage.