On July 4, President Trump signed into law an 887-page tax-and-spending megabill the day after the House adopted 218-214 the version the Senate passed 51-50 earlier in the week.
Republicans proclaimed the “One Big Beautiful Bill Act” as the beginning of a new economic golden age, while Democrats deplored it as “ugly” and cruel.
In fact, the bill had to pass to avoid a massive $4.5 trillion tax increase next year when the 2017 Tax Cuts and Jobs Act expires December 31. Passage prevented tax increases on 62% of taxpayers that would have occurred if the TCJA expired as scheduled.
Republicans had a hard time persuading some of their own lawmakers to support the party’s big tax-cutting and domestic-policy bill.
Initial polling shows the law to be unpopular. Opposition outweighed support by more than 20 percent in recent Quinnipiac and Fox News polls.
The bill largely extends the tax status quo. Most of Trump’s 2017 tax cuts are extended for all income groups. It continues current tax rates, with a top rate of 37%.
It also retains the 2017 near-doubling of the standard deduction and expands the estate tax exemption to $15 million per person. For corporations, immediate deductions for certain research expenses and equipment purchases are made permanent.
Tax credits for purchasing electric vehicles will end Sept. 30.
The bill ends tax credits for wind and solar projects that begin construction later than a year from now.
Some of Trump’s campaign proposals are in the bill—with income limits—including a “no tax on tips” deduction of up to $25,000 per person, and a “no tax on overtime” deduction capped at $12,500 for individuals or $25,000 for married couples.
The bill also sets a $10,000 deduction for auto-loan interest on new U.S.-made cars.
As an alternative to Trump’s “no tax on Social Security”, the bill establishes a new $6,000 per-person tax deduction for seniors. The deduction phases out completely with income exceeding $175,000 per person or $250,000 per couple.
These exemptions are set to lapse after 2028, but they are likely to be extended and expanded.
Democrats and major media voices make cynically histrionic claims the bill “guts the social safety net.” Savings from both Medicaid and food stamps come entirely from policy tweaks that reduce waste and abuse such as stricter eligibility checks.
The bill sets a new part-time work requirement of 80 hours per month for adults to qualify for Medicaid. The work requirement doesn’t apply to anyone who is disabled, pregnant or caring for a child younger than 14. If you volunteer for 20 hours a week or are enrolled in school, you can get Medicaid.
The Democrats position is that Medicaid should be a universal benefit even for men who refuse to work.
An estimated 1.4 million illegal immigrants currently receive Medicaid who are ineligible.
Annual spending on Medicaid will grow over the next decade even with the bill’s roughly $1 trillion in estimated savings. Medicaid spending has risen by 60% since 2019, and the bill’s intent is to try to bend Medicaid’s rate of growth closer to that in 2020.
Roughly a quarter of Americans are currently on Medicaid, a program intended for the elderly poor, disabled people and low-income children.
Food aid now tops $100 billion a year and no longer shrinks as it once did when the economy is growing.
Republicans will have to rebut distortions or lose the 2026 election.
The bill’s other main upside is an additional $150 billion for defense. The defense boost is less than the bill’s $170 billion for homeland security and immigration enforcement, which is excessive given border crossings are now virtually nil. The $45 billion for the border wall would be better spent on increased weapons manufacturing and ships.
The bill’s greatest virtue is that it now provides certainty for taxpayers.
