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Intended Effects                                                                                                                Join our Quarterly Newsletter   July 2025                                                                                             

Mark R. Hoffman

CEO, Principal

You know that guy whose political beliefs are so diametrically opposed to yours and so loud about them that neither of you will give an inch if it comes up in conversation? We all know that guy. Can’t stand him.  Well today, I’m going to do my absolute best NOT to be that guy while outlining the intended short- and long-term effects of the One Big Beautiful Bill Act (OBBBA) on the U.S. economy. [Note: this is not an article about fairness, distribution of wealth/income, progressive vs. regressive tax, etc. – only the intended effect on our economy].  

OBBBA is a sweeping legislative package designed to improve the American economy through public investment in infrastructure, education, family support, and changes to the tax system. With a projected cost of $3.5 trillion over ten years(1), the bill attempts to address structural weaknesses in the U.S. economy by improving public goods and investing in productivity. Supporters argue that it will stimulate both immediate and long-term economic growth. Critics warn of inflation, inefficiencies, and fiscal burden. 

Short-Term Intent: A Measured Stimulus

Government Spending

In the short term (typically 1–3 years), the OBBBA in intended to function as a fiscal stimulus by boosting aggregate demand. Major components include:

• Roughly $1 trillion in traditional infrastructure (roads, bridges, broadband, transit)
• Universal pre-kindergarten and childcare subsidies
• Tax credits and income support for low- and middle-income households

Public spending puts money directly into the economy. Infrastructure projects create immediate employment and increase demand for materials and labor. Social supports and tax credits increase disposable income, particularly for lower-income households with high consumption propensities. This leads to higher short-term consumption and employment.

The fiscal multiplier for infrastructure spending is generally estimated at 1.4 to 1.8, meaning each $1 of government spending produces up to $1.80 in additional GDP⁽¹⁾. Similarly, income transfers and tax credits to working families have strong multipliers—often exceeding 1.5⁽²⁾—because they are quickly spent rather than saved.

Labor Market Participation Gains

With a very low unemployment rate in the U.S. right now, labor force participation becomes a critical driver of economic growth. Universal childcare and pre-K access are designed not only to support early childhood development but also to reduce barriers to labor force participation. This is especially important for working parents, particularly mothers, who often face difficult trade-offs between employment and caregiving. Increasing labor supply has an immediate economic effect: more people working means higher household income, greater tax revenue, and a boost to overall productivity.

Biggest Downside Threat: Inflationary Pressures

Despite these positive impacts, there is significant concern about overheating the economy. As of 2025, the U.S. economy is not in recession, inflation has been elevated, and the labor market is tight. Introducing additional demand could exacerbate inflation. This could prompt the Federal Reserve to raise interest rates, which can offset the stimulative effects of fiscal policy. If borrowing costs increase, private investment may decline, neutralizing part of the bill’s growth potential.

  

Long-Term Intent: Improved Productivity

Infrastructure Efficiency

Long-term infrastructure investments improve economic efficiency. Better roads and transit reduce travel times and logistics costs. Modernized broadband networks expand digital access and support remote work and digital business. These investments can have long-lasting economic benefits. The Eisenhower Interstate System, for example, is credited with significantly increasing U.S. productivity for decades. If OBBBA projects can have a similar effect, the productivity gains could outlast the upfront costs and add to long-run GDP.

Childcare, Pre-K, and Education: Investing in Human Capital

Perhaps the most potentially transformative part of the OBBBA is its focus on early childhood education and childcare affordability. These policies have a dual benefit:

1. In the near term, they support parents—especially women—joining or staying in the workforce.
2. Over time, they enhance children's cognitive and social development, leading to higher educational attainment, earnings, and productivity later in life.

Studies from the Brookings Institution and RAND Corporation show that universal pre-K yields $2 to $7 in economic returns for every dollar spent. These returns come from improved school readiness, higher graduation rates, and reduced social service needs later in life. Expanding access to community college, vocational training, and workforce development - also included in the bill - are intended to further raise the skill level of the workforce and increase long-term economic output.

Biggest Downside Threat: Fiscal Sustainability and Debt Dynamics

The biggest concern is that new spending will not be offset by new revenue. If the deficit expands and interest rates rise, the cost of servicing national debt could severely limit future fiscal flexibility. The cost of the U.S. debt service is already close to $1 trillion/year representing around 17% of the budget.  The CBO estimates that a 1% rise in interest rates from here would cost the U.S. an additional $200-300 billion/year. 

The U.S. economy is unbelievably complex. Government policy is even worse. It is impossible to specifically measure the effects of one set of policies or laws in isolation as everything else around it is changing at the same time.  Nevertheless, I find it very useful to try to understand the intended effects of a proposed change before praising it or damning it. 

 

 ⁽¹⁾ Source: CBO

⁽²⁾ Source: The World Bank

Mark is a co-founder of Lanier Asset Management and serves as its Chief Executive Officer. Prior to founding Lanier, he was a Managing Director and Partner at The Boston Consulting Group. Mark is an honors graduate of The University of North Carolina at Chapel Hill with a BA in Economics and holds an MBA from The Harvard Business School.

Lanier Asset Management, LLC is an SEC registered investment adviser. Information presented is for educational purposes only.