Congress has passed the Republicans’ reconciliation bill on a near party-line vote, delivering a major political win for President Trump, who can now sign it into law on the Fourth of July as he wanted. Speaker Mike Johnson and Majority Leader John Thune worked with very tight margins to get the bill across the finish line, proving wrong many who thought it would take longer or be impossible.
It is a significant conservative policy win that the bill makes permanent the meat of the Tax Cuts and Jobs Act of 2017: the individual income tax brackets, the doubled standard deduction, the repeal of personal exemptions, the cap on the mortgage interest deduction, and the near-elimination of the alternative minimum tax and the estate tax.
Due in large part to the Senate Finance Committee’s intervention, the law also made permanent full expensing for most categories of business investment. The TCJA’s temporary full expensing had been phasing out since 2023. Permanency is another major conservative policy win that undoes a long-running asymmetry between the tax treatment of capital and labor that has been holding back economic growth.
The bill did, however, go back on some other positive aspects of the TCJA. It raised the limit on the state and local tax (SALT) deduction from $10,000 to $40,000, supposedly for the next five years but likely to be extended by a future Congress. The SALT deduction ideally would not exist at all, and keeping the unindexed $10,000 cap would have helped it gradually disappear. The bill also fails to restore the child tax credit to the value it had when the TCJA passed, a value that inflation has eroded.
One of the great benefits of the TCJA was also that it simplified the tax code by reducing the number of deductions that people would take. This law goes the other direction, adding temporary deductions for tip income, overtime pay, and car-loan interest as political gimmicks. It also adds a higher standard deduction for seniors, who are already on average wealthier than working people and already receive thousands of dollars of federal benefits that they did not pay for. Those tax cuts will do nothing for economic growth, and they make the tax code less fair.
The spending side of the bill is much worse than the tax side. Despite the caterwauling from Democrats and the media about drastic cuts, it hardly cuts spending at all. The fundamental problem with American fiscal policy is that relatively low taxes are funding relatively high spending. Republicans get the tax side right while getting the spending side only slightly less wrong than the Democrats.
The law’s supposedly deadly Medicaid “cuts” are actually just slower increases from an already inflated baseline. Under the bill, Medicaid spending will rise by about 3 percent per year for the next ten years, and that is building off a surge in spending and enrollment under Biden. Despite the bill’s inadequacy on spending, this portion still represents the largest budget-score savings from welfare reform in the history of the country.
And that’s the problem: Congress can pass record savings while driving up the debt overall. Social Security is not eligible for reform under budget reconciliation, but the bill refused to deal with Medicare, even leaving out basic common-sense changes such as site neutrality for payments.
Rather than fully repeal Biden’s so-called Inflation Reduction Act, Republicans left significant portions of it in place, with the Senate scaling back cuts the House had made. The calculation that Democrats made is that if they channeled enough green-energy scam subsidies into Republican states, then Republicans would put aside principle in favor of cold hard federal cash. That calculation, sadly, proved to be in large part correct.
The bill increases the debt ceiling by $5 trillion, the second-largest such increase ever. It needed to be raised to prevent default later this summer, but there was no reason to raise it by that much. The debt ceiling has been used in the past as leverage to secure spending reforms, including during Biden’s presidency, but Republicans have essentially given that up for the next few years.
Republicans talk a good game on spending cuts. For example, the Republican Study Committee budget proposal from last year would have cut spending by $17 trillion over the next ten years. The vast majority of House Republicans are RSC members. But when it came time to actually vote on the budget resolution earlier this year, they instructed the committees to cut spending by only $1.5 trillion. The $17 trillion was always unrealistic, but they couldn’t even manage 10 percent of that?
It is good that the bill increases necessary spending for immigration enforcement, including more agents and more detention facilities. It is similarly encouraging that it funds more defense spending. But both should have been paid for with more cuts elsewhere. A provision defunding Planned Parenthood from Medicaid is a positive milestone but was unfortunately pared back to just a one-year restriction.
For all of the changes Trump has wrought in politics, this bill has ended up being more of the same on fiscal policy from Republicans: overall decent tax policy and overall irresponsible domestic spending. It may have been worth it to avoid a massive tax hike when the 2017 tax brackets expire at the end of this year, but the failure to get spending under control will come back to haunt any Republican who wanted to be remembered for helping to bring our debt under control.