A Policy Take On The "Big Beautiful Bill"

So, what is good or bad about the Trump 2.0 budget bill called the "Big Beautiful Bill."

1. The Medicaid and Food Stamps cuts are catastrophic and hurt the most needed in a bill that lavishes benefits on the rich and there are many other bad cuts to spending (and to the Obamacare health insurance tax credit):

Major Spending Cuts

. . . 

Changes to Medicaid and Health Insurance Marketplaces: The Energy and Commerce Committee’s proposal includes changes to major federal health programs. It would cut Medicaid spending by imposing work requirements for able-bodied adults without dependents, increasing eligibility checks to twice a year, reducing the Federal Medical Assistance Percentage (FMAP) for states covering undocumented immigrants, introducing cost-sharing for Medicaid expansion enrollees, banning new or increased provider taxes used to draw federal funds, and capping provider payments at Medicare rates. It would also codify proposed changes to the federally subsidized Health Insurance Marketplaces that would reduce participation in the Marketplaces. These proposals would reduce the deficit by more than $900 billion over the budget window.

Changes to the Supplemental Nutrition Assistance Program (SNAP): The Agriculture Committee’s proposal would reduce spending on SNAP by more than $290 billion over ten years. The bill would shift a significant portion of SNAP benefit costs to states with a new cost-sharing formula linked to payment error rates. It would also create additional work documentation requirements, limit the growth of the Thrifty Food Plan, shift administrative costs to states, and make other changes to reduce federal SNAP costs.

Changes to student loans: The Education and Workforce Committee’s proposal would eliminate subsidized and income-driven loan repayment plans, impose new overall limitations on student borrowing, and tighten Pell Grant eligibility. Altogether, the Education and Workforce Committee’s proposal would reduce spending by $350 billion over the budget window. Under federal budget accounting rules, the lifetime subsidy costs of student loans are measured on an accrual basis and recorded up front. As a result, almost $200 billion of the Committee’s total savings are recorded in the budget immediately in Fiscal Year 2025.

3. The cuts to the Obamacare health insurance tax credit are very bad for middle class people, especially the self-employed, even though the original design of those tax credits is far too clunky and complicated.

4. Many of the extended provision of the Trump 2017 tax bill are bad, including:

* Lowering the corporate tax rate to 21%, which is bad tax policy.

* The pass through entity tax break (which is increased from 21% to 23%), which never made sense.

* Ending most casualty loss deductions.

* Ending most cost of earning income deductions.

* Severely curtailing the state and local tax deduction (although this is modestly relaxed increasing the cap on the state and local tax (SALT) deduction to $30,000 from $10,000 for taxpayers with income under $400,000, but limiting taxpayers’ ability to use state pass-through entity workarounds for the individual SALT cap).

* Opportunity Zones were a clunky and bureaucratic tax policy that was always a mechanically bad way to achieve the desirable end of encouraging economic development in depressed areas.

Broadly speaking, many of the revenue raisers in that bill abridged good tax policies, and the giveaways to the wealthy and publicly held companies were outrageous. We have a big budget deficit primarily because of these tax giveaways to the rich. One leading model summarizes the budget impacts as follows:

Some of the new tax provisions break down as follows (from the same source):

5. It makes the giveaway in gift and estate taxes worse, increasing the lifetime exemption for the estate, gift, and generation skipping transfer taxes to $15 million in 2026 (indexed to inflation thereafter). It is currently $13.99 million indexed for inflation, which is also too large. It would have fallen to about $7 million in 2026 without this bill.

6. A $4,000 tax deduction per person age 65 or older, simply because of their age, is bad policy. Excluding Social Security payments from income would have been a better policy and closer to the campaign rhetoric but more expensive. This would have cost a $1 trillion over ten years v. $200 billion if the bonus deduction for seniors were made permanent.

7. The new tax break for car loan interest probably violates our World Trade Organization treaty requirements and tax incentives to take out personal debt on depreciating personal assets. is bad tax policy. This is why Ronald Reagan eliminated them in the 1986 tax bill and why they haven't been reinstated. The $35 billion tax savings over four years doesn't justify it (and higher car prices due to tariffs undermine the policy).

8. The MAGA account $1,000 tax credit for newborns is clunky and bureaucratic and a political cheap shot, when it could have been a simple extra child tax credit.

9. The tip deduction, by continuing to make tips subject to payroll taxes and state and local income taxes, for a group that pays little or nothing in federal income taxes, is pretty meaningless. The extension of the employer payroll tax tip credit from the food and beverage business to the beauty services industry (hair car, manicures, etc.) is a step in the right direction. But the whole treatment of tipped income is clumsy and doesn't address the real concerns. Tips should be classified as self-employment income rather than as wages and salaries, and any tax break on tips should extent to self-employment taxation.

10. The tax plan for net investment income from large college endowments is politically presented as a way to punish higher education as part of a larger assault on higher education by Trump, also attacking foreign students and immigrant professors, trying to regulate DEI in higher education without legal authority to do so, doing serious harm to the military academies, and baselessly threatening university tax exemptions. Honestly, a tax on the net investment income all of non-profits (which already is in place for political organizations) wouldn't be a horrible thing. But singling out colleges and universities, which are less abusive than other kinds of non-profits, is problematic. A provision granting the President great freedom to revoke non-profit status based upon the policies and speech of the non-profit is also deeply problematic (and has been removed from the bill for now).

11. The bans on state and local regulation of AI for ten years is at a minimum over broad.

12. The phase out of the environmental tax credits of the Inflation Reduction Act aren't necessarily bad as a matter of tax policy but aren't good as a matter of environmental policy. Tax laws that pick winners and losers aren't a great idea and should be temporary. Tariffs on imports of electric vehicles and solar panels, especially from China, however, add insult to injury.

13. Proposed payments to farmers hurt by tariffs, while netting out the harm to farmers, is much worse than not imposing tariffs in the first place. It has left farmers irrevocably harmed as foreign buyers have found new suppliers, and hits Americans with not only tariffs paid but also with taxpayer funds to counteract them.

14. Imposing new reciprocal taxes for "unfair" foreign taxes sounds murky and like an invitation to horrible foreign policy.