On the menu today: The Senate has made its changes to the “Big Beautiful Bill” and generally made it worse in the eyes of fiscal hawks; it looks like a much larger — quadrupled! — state and local tax deduction is coming our way. Meanwhile, President Trump is fuming that Japan isn’t importing more rice from the United States, Secretary of State Marco Rubio meets with his counterparts of “the Quad,” and Chinese navy aircraft carriers are traveling further into the Pacific than ever before. Finally, President Trump’s nominee to be Supreme Allied Commander of Europe gives his assessment of the Russian invasion of Ukraine.
Senate Republicans Are Voting to Blow a Hole in the Budget
It was clear from the House elections of 2024 that if Republicans wanted to get a big tax bill through Congress in 2025, they were going to have to play ball with blue-state House members and raise the deduction for state and local taxes from $10,000.
But as the “Big Beautiful Bill” emerges from the Senate, Republicans are on the brink of quadrupling it to $40,000, then increasing it even further. As Robert Powell, retirement editor for TheStreet.com, summarizes:
The Senate version takes a different approach. It proposes a temporary SALT cap increase from 2025 through 2029, followed by a return to the $10,000 cap:
- 2025: Cap rises to $40,000
- 2026: Adjusted to $40,400
- 2027–2029: Cap increases annually by 1 percent.
- 2030 and beyond: Cap returns to $10,000
For married individuals filing separately, these caps are halved. . . .
The Senate plan includes a phase-down for high earners, starting in 2025. Here’s how it works:
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The benefit phases down once your modified adjusted gross income (MAGI) exceeds $500,000 (or $250,000 for married filing separately).
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The reduction equals 30% of the amount your MAGI exceeds the threshold.
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Importantly, the SALT cap cannot fall below $10,000 — even for the wealthiest filers.
You and I know that if the SALT cap increases to $40,400 or so by 2029, then it is extremely unlikely that in 2030, Congress — no matter who controls the House and Senate in that cycle — will let it drop down to $10,000 again. Too many middle-class and upper-income families would experience a significant tax increase and complain extremely loudly about it.
When you quadruple a tax deduction, the government takes in less money.
The Committee for a Responsible Federal Budget is thoroughly unimpressed:
We estimate the Senate’s direct SALT relief is roughly 10 percent larger than the House, and the combined SALT relief and Alternative Minimum Tax (AMT) changes are two-thirds larger. If made permanent, we estimate the Senate changes, including AMT, would cost $325 billion on net, while the House changes would cost roughly $200 billion.
Republicans are about to add about $325 billion to the debt over the next ten years to keep the eight House Republicans in the SALT caucus on board. By my math, that comes out to about $40.6 billion per House vote for passage.
And that’s just the deficit exacerbation from the SALT changes. Overall, this isn’t pretty:
The Congressional Budget Office (CBO) just published their “current policy” score of the Senate reconciliation bill, showing the bill would add about $500 billion less to the deficit than extending all the expiring 2017 tax cuts. Against a more appropriate current law baseline, and including interest, these numbers suggest the bill would add over $3.9 trillion to the national debt. Specifically, the bill includes roughly $4.45 trillion of net tax cuts and nearly $300 billion of gross spending increase, partially offset by nearly $1.5 trillion of gross spending cuts. We estimate the bill would increase interest costs by nearly $700 billion.
Our John Puri looks at the changes the Senate enacted over the last ten days and concludes, “Much of the Senate’s bill has been picked apart by the body’s parliamentarian to ensure compliance with the rules of reconciliation. Political pressures from various members of the Republican Conference have forced leadership to adopt further changes, mostly in the wrong direction.”
The Big Beautiful Bill is now, more or less, “too big to fail.” A huge chunk of President Trump’s domestic agenda is tied up in it. Failure to get some version of this bill to the president’s desk would represent a colossal failure by Senate Majority Leader John Thune and House Speaker Mike Johnson. As its proponents accurately warn, not passing anything would mean the individual tax cuts enacted in 2017 expire, hitting Americans with a massive tax increase.
For two generations, Congress could run a deficit almost every year and not worry about the debt. But the nation’s debt-to-GDP ratio has changed, while Congress’s habits have not. The United States is projected to spend about $1 trillion — that’s trillion with a “TR,” not a “B” — in interest on the debt this fiscal year, and we’ll likely surpass $1 trillion next year.
Last year, the U.S. government collected just under $5 trillion in revenue. The good news is the government has actually collected $194 billion more this year than it had at this point last year. (That’s the very limited upside to tariffs and the trade war.)
Trump’s Angry About Rice as the Quad Meets
Even by the standards of President Trump venting his spleen on Truth Social, this was one of the odder ones:
To show people how spoiled Countries have become with respect to the United States of America, and I have great respect for Japan, they won’t take our RICE, and yet they have a massive rice shortage. In other words, we’ll just be sending them a letter, and we love having them as a Trading Partner for many years to come.
First, yes, Japan does import rice from the U.S.; in 2023, Japan imported 232,000 tons of rice from the U.S., valued at $384 million. And yes, Japan has had a long-brewing shortage of rice, doubling prices from a year ago. As Bloomberg News lays out, Japan could increase its imports of American rice, but that would irk domestic producers:
The rice supply shortage that the US president cited has frustrated Japanese consumers already unhappy about an ongoing cost-of-living crunch. Rice prices have doubled in the last year, prompting Prime Minister Shigeru Ishiba’s government to release emergency reserves into the market and sideline conventional distribution channels.
Expanding imports of American rice might help ease the imbalance in the market, but that move would increase angst in the domestic farming sector, especially if their interests are seen to be compromised to secure a lowering of tariffs for the much larger car industry.
Ishiba may want to hold off making any concessions that affect that segment of the population ahead of an upper house election on July 20.
Today Secretary of State* Marco Rubio holds his second meeting with his peers from “the Quad” — Australia’s Minister for Foreign Affairs Penny Wong, Indian minister of external affairs Dr. Subrahmanyam Jaishankar, and Japanese Foreign minister Takeshi Iwaya.
A Japanese government official tells me that trade talks are not expected to be on the agenda; on the American side, the current ongoing trade negotiations are handled by Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and U.S. Trade Representative Jamieson Greer, and reportedly the three men don’t always agree on what concessions the Trump administration actually wants.
Today, the Quad is expected to announce a joint statement reaffirming the commitment to a “Free and Open Indo-Pacific,” and the Quad-at-Sea Ship Observer Mission, where Coast Guard crews from the four countries will jointly operate on the U.S Coast Guard Cutter Stratton, which is currently on its way to Guam.
While the final statement from the Quad meeting may not explicitly mention China, the actions of Beijing are certain to be discussed. Earlier this month, the “Chinese People’s Liberation Army Navy released photos showing two of its aircraft carriers operating simultaneously for the first time beyond the so-called First Island Chain in the western Pacific.”
Taiwanese media reported that the Chinese aircraft carrier Liaoning crossed the Second Island Chain, the first time any Chinese carrier had operated so far to the east.
This is a sign that the Chinese navy is operating further from its shores, and beyond the national waters and boundaries of some regional U.S. allies.
The notion of the Pacific having unofficial island chain maritime boundaries stems from former Secretary of State John Foster Dulles.
The First Island Chain runs southeast from Japan, just east of Taiwan, between China and the Philippines in the South China Sea, and down and across to Vietnam.
The Second Island Chain runs southwest from Japan, to Guam and western New Guinea.
The Third Island Chain begins at the Aleutian Islands in Alaska and runs south across the center of the Pacific Ocean toward Oceania and includes Hawaii.
*Rubio is also the acting National Security Adviser, the acting archivist at the National Archives and Records Administration, and now runs the remaining programs that used to constitute the old U.S. Agency for International Development. Probably by the end of the day, Rubio will be playing shortstop for the Washington Nationals as well.
ADDENDUM: Lieutenant General Alexus G. Grynkewich of the U.S. Air Force, the nominee to be Commander of the United States European Command and Supreme Allied Commander in Europe, in his confirmation hearing last week before the Senate Armed Services Committee:
Senator Tommy Tuberville, R-Alabama: Let me ask this question. This Ukraine Russia war has been going on for a long time. A lot of people killed. We’ve spent a lot of money. Can Ukraine win?
Grynkewich: Senator, I think Ukraine can win. I think anytime your own homeland is threatened, you fight with a tenacity that’s difficult for us to conceive of when we, if we haven’t found ourselves in that same situation.
Tuberville: Yeah, they have they have absolutely fought hard. You got to give it to them.
For those wondering about his surname, Lieutenant General Grynkewich is a descendant of Belarussian immigrants.