White House economic advisor Kevin Hassett claims that the U.S. economy narrowly avoided a recession thanks to the GOP-backed tax bill.

What Happened: Hassett says that had the “One Big, Beautiful Bill” not passed in the House, “it would have been the biggest tax hike in American history,” while appearing on CNBC’s Squawk Box on Tuesday.

“And that big tax hike… would have cut about 4% off of GDP growth. We'd have had a recession,” says the Director of the National Economic Council, while citing figures from the Council of Economic Advisers and the Congressional Budget Office to support his claim.

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Hassett explains that during a recession, government revenue tends to fall more steeply than the GDP. “The elasticity is one and a half,” he says. “So it’s a 6% decline in revenue,” assuming a 4% drop in economic output. That would amount to “maybe about $300 billion decline in revenue just this year,” he says.

He also pushed back against claims of the economy being vulnerable, pointing to recent strength in employment figures and the moderation of inflation. “We have really strong job numbers. We’ve got inflation heading down towards the Fed’s target,” Hassett said.

Hassett believes the markets were rattled by early uncertainty over the fate of the bill. He adds that the “Senate is making a great deal of progress,” and that the “gap between the Senate and the House is not enormous.”

Hassett concludes that, “once that big, beautiful bill is passed, then I think that we're off to the races,” implying a burst of momentum in the markets, as well as the broader economy.

Why It Matters: Hassett’s comments come amid growing concerns regarding spiking Treasury yields, with 30-Year notes surging past the key 5% levels last week, owing to the bill’s provisions for extensive tax cuts and increased spending.

Critics such as Lawrence McDonald of The Bear Traps Report have referred to the bill as being akin to “smoking in the dynamite shed,” referring to the long-term implications of rates being “higher for longer,” while citing the example of the billions in unrealized losses now facing Japan’s top insurance companies.

The bill has also come under criticism for its cuts to social safety nets and programs, while offering extensive tax cuts to the ultra-wealthy. Economist Justin Wolfers referred to it as “just pure reverse Robin Hood” last week, owing to its regressive characteristics.

Price Action: U.S. 10-Year Treasury yields are now at 4.46%, while the 20-Year and 30-Year notes offer yields of 4.98%, and 4.97%, respectively, marking a retreat from the peak 5% yields last week.

Photo Courtesy: Dilok Klaisataporn On Shutterstock.com

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