As Congressional Republicans wrangle over the details in President Trump’s “big, beautiful bill,” some commentary suggests there are significant divisions among Republicans. But Trump and virtually all Congressional Republicans strongly support the bill’s central elements–very large tax cuts for the wealthiest Americans, paid for by deep cuts in essential programs while adding trillions to the deficit.
Republicans are almost unanimously in favor of the deep, regressive tax cuts in the OBBBA, the “One Big Beautiful Bill Act” (yes, that’s the official name of the legislation). Discussing a May meeting he held with House Republicans, Trump said “we have unbelievable unity.” And the House passed it by one vote, 215-214, with only two dissenting Republican votes.
“Yea” votes included 30 of the 31 members of the very conservative House Freedom Caucus. Most of them have historically voted against increases in the debt ceiling, but they voted for the OBBBA even though it authorizes up to an additional $4 trillion in borrowing.
The Beautiful Bill: Deep, Regressive Tax Cuts for the Wealthy
The bill’s biggest cost is making Trump’s first-term tax cuts permanent (they are otherwise scheduled to expire at the end of this year.)
The Congressional Budget Office (CBO), Congress’ official scorekeeper, estimates OBBBA will increase the overall deficit by $3 trillion over ten years. That’s $2.4 trillion coming from revenue losses not fully offset by spending cuts, and another $551 billion from higher interest rates on the federal debt. Just making Trump’s tax cuts permanent alone will add around $2 trillion to the deficit.
OBBBA’s tax cuts are highly tilted towards the wealthy, while cutting benefits for the poor and middle-income. The New York Times reports the bill would be “more regressive than any major tax or entitlement law in decades.” After-tax incomes would fall for households in the lowest 30% of the income distribution, while the top 10% would see a 2.3% increase in their income.
And the higher the income bracket, the more regressive it gets. The Tax Policy Center finds the bill would “cut taxes for the lowest-income households” by “less than 1 percent of their after-tax income,” about $160 per year on average. In contrast, the top 0.1 percent of households, “those making $5 million or more, would receive average tax cuts of almost $300,000 in 2026, about 3.3 percent of their after-tax income.” The top 5 percent of households, with incomes of $460,000 or higher, “would get about one-third” of the total tax benefits from OBBBA.
Economics Nobel laureate Paul Krugman calls this “reverse Robin-Hoodism”—taking from the poor and less-well off and giving to the rich. He also cites additional findings from the Yale Budget Lab that Trump’s tariffs also will hurt lower-income households, meaning the comingled policy effects of the big, beautiful bill and Trump’s tariffs will reduce net household income “among the bottom 80 percent of households.”
But there’s no significant disagreement among Republicans about passing tax cuts for the very wealthy, paid for in part (but only in part) by deep spending cuts that hurt lower income people.
The Big, Beautiful Bill Adds Trillions To The Deficit And Debt
CBO concluded the House-passed bill will cause the federal deficit to increase by trillions of dollars, even after factoring in spending cuts to programs like Medicaid.
Remember that the “bill is centered around an extension of tax cuts for individuals” passed during Trump’s first term. Without new legislation, those expire at the end of this year.
Why weren’t they made permanent in Trump’s first term? Under Congressional budget rules, tax cuts and spending have to be paid for over a ten-year period. The initial Trump tax cuts couldn’t run for ten years without increasing the deficit, so they were set to expire after eight years, making that budget (at least on paper) deficit-neutral.
But in OBBBA, the Trump tax cuts are made permanent. CBO finds the bill will increase the federal deficit by $2.4 trillion over ten years.
Republicans are making deep cuts in non-military spending to help offset the tax cuts. The biggest cut is to Medicaid–$806 billion over ten years. CBO estimates those cuts and other enacted policies “would increase the number of people without health insurance by 16.0 million in 2034.”
As severe as those spending cuts are, they don’t come close to covering the cost of the tax cuts. Again, CBO estimates the increased deficit plus higher interest rates means an additional $3 to $4.5 trillion in the deficit. So the Republicans plan to borrow the rest of it.
That means a big increase in the debt limit, and OBBBA authorizes increasing the debt limit by around $4 trillion. As I’ve explained elsewhere, America is virtually unique in requiring separate legislative approval to increase borrowing when authorized spending exceeds revenues.
There’s nothing inherently wrong with borrowing. Fighting recessions, addressing emergencies like COVID-19 and wars, or making public investments to increase productivity and growth are all worthy reasons to borrow.
But borrowing to finance tax cuts for the very wealthiest, when incomes are already historically unequal, is simply bad economics. It will burden all taxpayers, reduce our ability to respond to any future recession, and drive up interest rates. That in turn will raise the price of mortgages, credit cards and auto debt, and business borrowing costs.
Republicans Strongly Favor Tax Cuts and Increased Debt
It may seem very surprising to see Republicans, long associated with budget balancing and austerity (at least rhetorically), embrace such large increases in borrowing. (In contrast, cutting programs that benefit low-income Americans is fairly typical for Republican budgets.).
Republicans try to soften or deny the big, beautiful bill’s implications in several ways. Some say the tax cuts will cause sharply increased economic growth, while others deny the deep Medicaid and other program cuts will hurt many (if any) people. In the Senate, there also is likely to be some tricky arithmetic understating the deficit increase, trying to making the bill look more balanced (at least on paper).
Along with other economists, I don’t think these arguments don’t hold water, and I’ll go through them in my next blog. But the financial markets see the big, beautiful bill’s reality, especially the significant increase in borrowing. And the markets have been reacting.
Recent weeks have seen a rare combination of higher bond yields combined with a falling value of the dollar. I’ve cited my New School colleague economist Will Milberg on how this rare combination signals a lack of investor confidence in U.S. assets generally.
But it isn’t just economists who worry. Ken Griffin, the billionaire founder of the Citadel hedge fund, endorsed Trump for president and donated $100 million to conservatives in the 2024 election. Griffin calls the big, beautiful bill “fiscally irresponsible.”
On another front, conservative Republican Senator Josh Hawley of Missouri, says deep Medicaid cuts in “health insurance for the working poor…is both morally wrong and politically suicidal.” (Hawley is one of several Republicans who see their party’s future in lower-income working class voters.)
But in spite of these conservative voices, Congressional passage of the big, beautiful bill is very likely. There may be tweaks here and there. But President Trump, and the Republican Party—which controls both Houses of Congress –are united on the bill’s main objective. That remains making Trump’s deep tax cuts for the wealthy permanent, paid for by cutting essential programs like Medicaid and additional trillions in borrowing.
Unless significant number of Republicans break from this objective, don’t be misled about claims of major disagreements over the big, beautiful bill. The bill’s three core elements—large and regressive tax cuts, deep cuts in basic programs, and big increases in the deficit and government borrowing–represent a near-unanimous Republican agreement on economic and budget policy.
Read the full article here
