Working Families Tax Cuts Power Economic Expansion

The One Big Beautiful Budget Act moves federal policy back toward growth, work, and fiscal discipline. Anchored by the Working Families Tax Cuts, the law improves incentives across the economy while pairing tax relief with meaningful spending restraint.

According to the Congressional Budget Office’s latest outlook, the economy strengthens in the near term as a result of the reconciliation law. After payrolls grew by an average of just 70,000 jobs per month in 2025, CBO projects that job growth rises to an average of 105,000 jobs per month in 2026 as economic activity picks up. The unemployment rate, which averaged 4.5 percent at the end of 2025, declines toward 4.4 percent in 2028 and ultimately settles near 4.2 percent later in the decade.

Those improvements reflect better incentives embedded in law.

Working Families Tax Cuts Boost Work and Investment

The tax provisions are the engine of the law’s economic impact.

By lowering effective marginal tax rates and improving capital recovery for businesses, the Working Families Tax Cuts increase incentives to work, invest, and expand payrolls. CBO explicitly links the law to higher labor supply and increased potential GDP.

Real GDP growth strengthens to 2.3 percent in 2026 before stabilizing around 1.8 percent in later years as demographic pressures persist. That early acceleration reflects the pro-growth effects of the legislation.

The law also improves the investment climate. Lower user costs of capital and expanded expensing increase business investment, which supports productivity growth and higher wages over time.

Tax policy shapes economic behavior. The OBBBA tilts those incentives toward production rather than redistribution.

Stronger Growth Expands the Economic Base

A larger economy generates more revenue without raising tax rates.

CBO projects that nominal GDP rises from roughly $30.7 trillion in 2025 to more than $47 trillion by 2036. Expanding the economic base is essential when addressing long-term fiscal pressures. Debt is measured relative to GDP. Policies that grow output improve the country’s capacity to manage that burden.

The law also boosts labor force participation by strengthening incentives to work. CBO notes that employment growth in 2026 is partly driven by the reconciliation act, which increases economic activity and labor demand.

More Americans working means higher payroll tax collections and lower dependency on federal programs.

Spending Restraint Reinforces Fiscal Discipline

The OBBBA does more than cut taxes. It slows the growth of mandatory spending and introduces accountability into federal programs.

CBO projects that mandatory outlays rise from 13.7 percent of GDP in 2026 to 15.0 percent by 2036 under current law. The reconciliation act begins to bend that trajectory through structural reforms.

Medicaid changes reinforce community engagement and reduce improper growth in federal spending. Food assistance reforms require greater state responsibility and encourage labor force participation. Student loan reforms address costly repayment structures that had increased federal exposure.

The law also addresses other major spending drivers while maintaining core protections for vulnerable populations.

Welfare Reform Supports Participation

Economic outcomes follow incentives.

Lower marginal tax rates increase labor supply. Work-related expectations in public assistance programs reinforce participation. When benefits are better targeted and tied to engagement, long-term dependency declines.

CBO’s projections reflect these dynamics. Employment rises more quickly in the near term, and the unemployment rate falls below what it otherwise would have been because of the law’s effects.

CFE Takeaway

The Working Families Tax Cuts strengthen incentives and accelerate job growth from 70,000 average monthly gains in 2025 to 105,000 in 2026. Real GDP growth rises to 2.3 percent in 2026. The unemployment rate trends down toward 4.2 percent over the decade. Nominal GDP expands to more than $47 trillion by 2036.

At the same time, the law reins in unsustainable spending growth and reforms Medicaid, food assistance, student lending, and related programs to reward work and responsibility.

Growth and discipline can coexist. This law demonstrates how.