It turns out that just one line in that example is responsible for causing
that lag:

(* ''a is a special equality type (it is not the same as the generic 'a
type. It *)

I have updated the MWE. After evaluating the macro definition I posted
earlier and the new example below, hit "C-c r".

Installing a package from Elpa is also good for sanity. That way I do not
worry about local changes made in your or my Elpa git clones. Installing
from Elpa ensures that you and I are using the exact same version of the
package (assuming that the package did not update in the meanwhile :)).

=====
(emacs-pkg-debug-setup '(;; Install sml-mode from GNU Elpa
                         (nil . (sml-mode)))
  (let ((test-file (expand-file-name "lag_test.sml"
                                     user-emacs-directory))) ; the macro
sets user-emacs-directory to (concat temporary-file-directory (getenv
"USER") "/" ".emacs.d-debug/")
    (defun my-report ()
      (interactive)
      (profiler-report)
      (profiler-stop)
      (profiler-reset))
    (global-set-key (kbd "C-c r") #'my-report)

    (with-temp-buffer
      (insert "(* ''a is a special equality type (it is not the same as the
generic 'a type. It *)")
      (write-file test-file))
    (profiler-start 'cpu)
    (find-file test-file)))
=====
-- 

Kaushal Modi