Following intensive lobbying from President Donald Trump and an extended legislative session, House Republicans this week successfully passed their version of a comprehensive bill that combines tax reductions with significant changes to federal assistance programs. The legislation, often referred to as the “one big, beautiful bill,” has sparked considerable debate due to its dual focus on tax cuts and provisions that could potentially reduce access to Medicaid and food assistance for millions of Americans.
Assessments of the bill suggest that while higher-income individuals are likely to experience the most substantial benefits from the proposed tax cuts, lower-income Americans could see reductions in support from key social safety net programs.
Democrats have criticized the bill as a harsh trade-off that disproportionately favors the wealthy at the expense of vulnerable populations. However, Republicans argue that these measures are essential to fulfilling President Trump’s economic agenda, curbing government waste and fraud, and ensuring the long-term sustainability of aid programs for those genuinely in need.
The House-passed bill represents the initial stage of a legislative process that now moves to the US Senate, where a separate version of tax and spending legislation will be considered. Senators are expected to closely monitor public reaction to the House bill, particularly criticisms highlighting its potential to exacerbate wealth inequality and contribute to the national debt through deficit spending.
An examination of the “one big, beautiful bill” reveals a strategy of offsetting tax reductions, primarily benefiting higher-income individuals, with decreased benefits for lower-income Americans.
Basic Financial Outline of the Bill
The scope and impact of the House’s tax and spending cuts package are undeniably significant. Final figures are still pending analysis from the Congressional Budget Office (CBO), which is currently assessing the version of the bill that incorporated late revisions.
However, initial CBO estimates indicated that the tax components of the package would increase the national deficit by $3.8 trillion over the next decade. Simultaneously, other provisions within the bill are projected to cut nearly $1 trillion in federal support for Medicaid and the Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps, during the same ten-year period.
Medicaid, which provides health insurance for low-income Americans, is projected to face the most substantial spending reductions, with the CBO estimating a decrease of nearly $700 billion in federal funding. SNAP would see a reduction of $267 billion in federal support. The bill also proposes increased spending in areas such as defense, immigration enforcement, and homeland security, while reducing federal spending in other sectors.
Impact on the National Debt
The current national debt exceeds $37 trillion. According to a preliminary independent analysis from the Committee for a Responsible Federal Budget, the House bill is projected to add an additional $3.1 trillion to the national debt over the next decade, including interest. Official figures from the CBO are still forthcoming. It is important to note that long-term budget projections are inherently complex, and the House Republicans continued to modify the bill’s provisions until shortly before its passage. Furthermore, the legislation is subject to potential changes as the Senate begins its deliberations.
Perception of Tax Cuts
A significant portion of the tax cuts included in the bill are not new reductions but rather extensions of tax cuts originally enacted during President Trump’s first term. Under current law, without congressional action, many Americans would face a tax increase at the end of this year due to the expiration of these individual income tax cuts from the 2017 tax bill. The House package aims to make essentially all of these provisions permanent.
However, according to Howard Gleckman, a senior fellow at the Tax Policy Center, many individuals may not perceive this as a tax cut, as it primarily maintains the existing tax system that has been in place. Nevertheless, analysis from the Tax Policy Center indicates that, compared to a scenario where Congress does not act, the majority of Americans (over 80%) would see a tax reduction in the upcoming year, with the average household experiencing a federal tax decrease of approximately $2,900. This analysis does not account for the impact of the spending cuts outlined in the bill.
Distribution of Tax Benefits
Analysis of the tax provisions suggests that higher-income taxpayers would be the primary beneficiaries. The Tax Policy Center estimates that 60% of the tax cuts would go to the top 20% of income earners (those with incomes of at least $217,000) in the next year, with over a third benefiting the top 5% (those earning $460,000 or more).
Data from the center illustrates the disproportionate increase in after-tax income for higher earners compared to other income groups. Individuals in the top 20% could see an average tax cut of $12,660 next year, representing a 3.4% increase in their after-tax income. Middle-income earners (with incomes between roughly $67,000 and $119,000) could receive a tax break of $1,840, increasing their after-tax income by 2.4%. Those in the lowest income bracket (earning less than about $35,000) are projected to receive a tax cut of $160, resulting in a modest 0.8% increase in their after-tax income. Individual circumstances will vary, as the tax package includes targeted breaks for specific groups, such as the temporary elimination of taxes on tips and overtime.
Temporary Provisions and Accounting Tactics
A key aspect of President Trump’s 2017 tax cuts was their temporary nature, a strategy used by lawmakers to present a reduced long-term impact on the deficit and national debt. It was widely anticipated that subsequent congressional sessions would address the extension or permanence of these cuts. The current House bill employs similar tactics by including several of President Trump’s campaign promises as temporary measures to lower their overall cost.
For example, the elimination of taxes on tips and overtime would be in effect from 2025 through 2028, as would be the $4,000 increase in the standard deduction for senior citizens, intended to fulfill President Trump’s pledge to end taxes on Social Security benefits. Additionally, the deduction of up to $10,000 in interest on certain car loans also expires after 2028. Several business tax measures within the package, which contribute to the tax breaks for the wealthiest Americans, are also temporary. This partially explains why the bill’s benefits for the highest earners are less pronounced in later years.
In a separate, politically significant move (not directly related to accounting), new work requirements for Medicaid are included in the bill. These are expected to lead to millions of people losing their health insurance. These requirements are not scheduled to take effect until the end of 2026, notably after the midterm elections, although states would have the option to implement them earlier in the year. According to an early analysis by the Committee for a Responsible Federal Budget, making all the temporary individual and business tax provisions permanent would add an estimated $5.1 trillion to the national debt.
Impact of Spending Cuts
The bill partially offsets the tax cuts through substantial reductions in Medicaid coverage and food stamps. This element is crucial for understanding the bill’s overall impact on Americans’ financial well-being, particularly those in lower income brackets.
The significant spending cuts to Medicaid and SNAP are projected to result in millions of individuals losing access to their health insurance and food assistance, potentially placing them in a far more precarious financial situation. Experts indicate that the implementation of work requirements for Medicaid and the expansion of such requirements in the SNAP program will affect not only the low-income adults targeted by Republicans but also children, senior citizens, and individuals with disabilities.
The Penn Wharton Budget Model analyzed the combined effects of the tax cuts, spending reductions in Medicaid and SNAP, and changes to the federal student loan program aimed at limiting federal involvement in student borrowing. The model found that the lowest-income Americans (making up to approximately $17,000) could see their incomes decrease by an average of $820 next year, a reduction of 14.6%. The next income group (incomes between $17,000 and $51,000) could experience an average income loss of $430, or 1.1%. Middle-income households (incomes between $51,000 and $93,000) are projected to fare better, receiving an average tax break of $840, representing a 1.1% increase in income. The highest earners (incomes exceeding $174,000) are expected to enjoy the most significant income boosts, averaging just over $12,000, or 2.6%.
Kent Smetters, faculty director of the Penn Wharton Budget Model, stated that for lower-income individuals, the losses in Medicaid, Affordable Care Act premium support, and food stamps outweigh any benefits derived from tax cuts, including those on tips, and that these losses are unlikely to be compensated for through economic growth.
Next Steps in the Senate
The House-passed bill is considered unlikely to pass the Senate in its current form. Changes are widely anticipated, given the narrow Republican majority in the Senate and diverse priorities within the party. The bill is being considered under a budget reconciliation process, which allows Republicans to bypass the filibuster rule and potentially pass the legislation with only Republican votes, although they have a limited margin for error. Some Republican senators are advocating for deeper spending cuts, while others have expressed concerns about the proposed Medicaid changes. There is also at least one GOP senator who supports a more generous child tax credit. Additionally, non-budgetary items included in the House bill could be removed by the Senate parliamentarian. If a version of the bill ultimately passes the Senate, it would then return to the House for final approval. While President Trump and House Speaker Mike Johnson have demonstrated an ability to navigate legislation through Congress, this bill will represent a significant legislative challenge for the new Senate Majority Leader, John Thune.
Addressing the National Debt
Despite the proposed spending cuts, the bill is projected to increase the national debt. There is currently limited bipartisan discussion about addressing the long-term drivers of the national debt, such as spending on Medicare, Medicaid, and Social Security, which government reports indicate are on unsustainable trajectories. The current bill prioritizes tax cuts over spending cuts, contributing to the deficit. The projected growth in Medicare and Social Security spending due to the aging baby boomer population are significant factors driving the deficit. The trust funds for both programs are projected to potentially face shortfalls within the next decade. However, neither party has made comprehensive reform of these programs a primary focus, largely due to the political sensitivity surrounding any potential changes. Bipartisan cooperation would likely be necessary to achieve meaningful solutions. While various potential solutions exist, such as incremental adjustments to the retirement age or payroll tax increases for higher-wage earners, these are not currently under serious consideration in the legislative process. Regarding Medicaid, the Republican approach outlined in the bill involves spending cuts, but these are coupled with more extensive tax reductions.
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