In recent weeks, a number of media commentators have criticized Donald Trump's " One big Beautiful Bill " on the basis of a statement by the Congressional Budget Office that under existing legislation the bill adds $US 3.4 trillion to the US Budget deficit. They tend not to mention that this is because the existing law assumes that all the tax cuts made in 2017 by the first Trump Administration expire at the end of this year.
Let’s us look at what might have happened in January 2026 if the cuts in US corporate tax rates in Trumps first term were not renewed and extended in the One Big Beautiful Bill.
Back in 2016 before the first Trump administration came to office in his first term, the US corporate tax rate was then 35%. In 2017 the Tax Cut and Jobs Act reduced the corporate tax rate to 21%. Because this bill was passed as a "Reconciliation Bill “, This meant it required only a simple majority of Senate votes to pass. This tax rate of 21% was due to expire in January 2026.
The One Big Beautiful Bill has made the expiring tax cuts permanent; this bill was signed into law on 4 July 2025. Now of course the same legislation also made a large number of individual tax cuts in the original 2017 bill permanent.
What would have happened if the bill had not passed. Let us construct what economists call a "Counterfactual"
Let’s just restrict ourselves to the case of what have happened in 2026 if the US corporate tax had risen to the prior rate of 35%.
This is an increase in the corporate tax rate of 14%. This increase would generate a sudden fall in US corporate after-tax earnings in January 2026 of 14%. What effect would that have on the level of the S&P 500?
The Price /Earnings Ratio of the S&P500 in July 2025 was 26.1.
Still the ten-year average Price/ Earnings Ratio for the S&P500 is only 18.99. Let’s say 19 times.
Should earnings per share have suddenly fallen by 14%, then the S&P 500 might have fallen by 14% multiplied by the short-term Price/ Earnings ratio.
This means a likely fall in the S&P500 of 37%.
As the market recovered to long term Price Earnings ratio of 19 this fall might then have ben be reduced to 27%.
Put simply, had the One Big, beautiful Bill not been passed, then in 2026 the US stock market might suddenly have fallen by 37% before then recovering to a fall of 27% .
The devastating effect on the US and indeed World economy might plausibly have caused a major recession.
On 9 June Kevin Hassert the Director of the National Economic Council said in a CBS interview with Margaret Brennan that if the bill did not pass US GDP would fall by 4% and 6-7 million Americans would lose their jobs.
The Passage of the One Big Beautiful Bill on 4 July thus avoided One Big Ugly Disaster.
