The Awful Alliterative Bill

On July 3, just hours before Trump’s vaunted deadline of July 4, the House of Representatives passed the 900-page domestic spending bill that Trump had christened with an alliterative name that we will not dignify here. The bill passed with all but two Republicans voting for it, and all Democrats voting against. Key elements of the bill include extending tax cuts passed in 2017 during the first Trump administration, new tax cuts for income on tips and overtime, and increased funding for defense and so-called border security. It also cuts approximately $1 trillion from Medicaid, and more from other government assistance to the poor. It phases out tax credits passed during the Biden administration for clean energy projects. And it increases the federal debt limit to $5 trillion “a measure Republicans are typically unwilling to support,” in the words of the New York Times, but “necessary to avert a federal default later this year.”

The version of the bill that ultimately passed the House was the bill as amended by the Senate “without change,” so as avoid having to re-start a process of reconciling the original House version of the bill with what emerged from the Senate. The two defecting Republican votes represented each of the factions within the House Republican membership who opposed the bill: Rep. Thomas Massie of Kentucky, who has been described as a “libertarian” and an advocate of a balanced budget, and Rep. Brian Fitzpatrick of Pennsylvania who said he opposed cuts to Medicaid added by the Senate beyond those included in the original House version.

The nonpartisan Congressional Budget Office (CBO) estimated that the version of the bill that passed would mean loss of health insurance for 11.8 million people by 2034, mostly from Medicaid. Health policy organization KFF predicts that, when combined with other changes to the Affordable Care Act Marketplace (separate from the spending bill),  approximately 17 million people could lose health insurance.

A June 12 letter from Senate Democrats cited data from the Sheps Center for Health Services Research at the University of North Carolina listing hundreds of hospitals at risk of reducing services, converting to a different type of facility, or closing altogether, based on the reductions in Medicaid funding contained in the domestic spending bill. As NBC News’s Berkeley Lovelace, Jr. noted, “Rural hospitals rely heavily on Medicaid funding because they typically serve a higher share of low-income patients.”  Already in early July, in anticipation of of the Medicaid cuts, Community Hospital of Nebraska announced closure of its Curtis Center that serves the town of Curtis, NE, population approximately 900.

The bill introduces new work requirements for recipients of Medicaid, despite the majority of Medicaid recipients already working. Data from KFF in 2023 showed 92% of Medicaid recipients under the age of 65 who do not receive some kind of disability insurance through Social Security, and aren’t covered by Medicare are already working full or part time. Nonetheless, the introduction of new reporting requirements is expected to make it more difficult to apply and stay in compliance with Medicaid programs. “… [M]any Medicaid enrollees and their advocates fear millions of people would lose their coverage under the proposed measure, including many who already work or qualify for an exemption but would get stuck in red tape,” CNN’s Tami Luhby wrote recently.

Supplemental Nutrition Assistance Program (SNAP) participants also stand to lose. SNAP recipients can currently adjust their income for SNAP calculation, for example using allowances for internet and basic utility costs. The domestic spending bill that passed eliminates those allowances, used by an estimated 71% or more of households participating in SNAP.

The bill eliminates the grad PLUS loan program for graduate and professional students, which uses a fixed interest rate, and according to the government’s own student aid website “can help pay for education expenses not covered by other financial aid.” Association of American Universities president Barbara R. Snyder wrote in a letter to senate leadership that the bill would “limit a student’s ability to pursue studies at an institution of their choice, especially for students with the highest financial need.” Despite the likely significant effect on students, the savings from discontinuing the program is estimated at $300 million over 10 years – a small amount in the scheme of things.

In the area of environmental investment and projects the bill has a predictably destructive effect. For instance, although $34 million of a $50 million Biden administration program to combat air pollution in low-income schools has already been designated, the Trump bill ends the program and will claw back the funds. Related – a tax credit for low-emission generation of electricity (e.g. wind, solar) is “phased down.” Ironically this could have the greatest effect on North Carolina, Florida, Texas, Iowa, Oklahoma, and Kansas, all states that voted for Trump in the 2024 election. (California is also among the top affected states.)

By contrast, corporate America stands to benefit from provisions in the bill. The legislation restores a tax break from the 2017 Tax Cuts and Jobs Act (TCJA) that permits businesses to fully write off the cost of equipment in the first year it is purchased; the measure has been phasing out since 2023. Businesses can once again fully deduct research and development costs in the year they occurred, rather than over five years starting in 2022 as mandated by the TCJA. Similarly, manufacturers can immediately deduct the full cost of new manufacturing facilities retroactively to January 2025, and continuing to January 2029. The bill also increases tax credits for semiconductor firms building facilities in the US. And it makes permanent a 20% deduction for owners of small business who pay business income taxes through their personal returns. 

Higher income earners are major beneficiaries of the tax components of the bill. The Tax Policy Center, a project of the Urban Institute and the Brookings Institution, calculates that households in the top 20% income bracket would receive an average tax cut of $12,500, or approximately 3.4%, while earners in the top 1-5%  would receive an average deduction of approximately 4.4%. Households in the lowest income bracket -- $35,000 or less per year – would receive an average tax cut of $150, or less than 1%.

As part of the bill the military receives about $150 billion to begin construction on Trump’s imagined “golden dome” missile shield that experts warn will be more complicated, cost more, and take longer than Trump has discussed. Speaking to the BBC, the Center for a New American Century’s Dr. Stacie Pettyjohn suggested Trump’s expectation of completing the project by the end of his term was unrealistic. The CBO estimated the project could take 20 years and cost $542 billion.

Despite Republicans traditionally claiming opposition to so-called earmarks, the bill contains numerous provisions that benefit narrowly targeted industries or groups. One provision popular with venture capitalists reduces the amount of time investors must hold stock in certain “qualified small businesses” before they can exclude capital gains from their taxes. Another provision inserted by Republicans closely resembles a bill introduced by Oklahoma Republican Senator James Lankford, which allows domestic fossil fuel companies to deduct certain drilling costs when calculating their income. The change to the “corporate alternative minimum tax” calculation would enable some companies to pay no federal tax. And in a provision that Democratic Senator Ron Wyden of Oregon called “Trump’s wedding gift to [Jeff] Bezos and birthday gift to [Elon] Musk” the bill includes a provision allowing “spaceports” defined as “any facility located at or in close proximity to a launch site or reentry site” to sell tax-exempt bonds.

Apparently at least some Republican senators were not aware of what they were voting for. For example, as reported by HuffPost, several expressed surprise at a provision added late in the process by Sen. Mike Crapo of Idaho that reduces the percentage of losses that gamblers can deduct from their federal taxes. Senators Grassley, Cornyn, and Tillis all admitted to HuffPost that they were unaware of the measure. 

The New York Times has a table listing  “nearly all” of the provisions of the bill, with an indication of the cost or savings the item represents.

In his March 4 address to a joint session of Congress Trump declared that he wanted to balance the federal budget, “in the near future.”

In the near future, I want to do what has not been done in 24 years: balance the federal budget. We are going to balance it.

The statement received some of the loudest applause of the night, from Republican lawmakers. But, as the conservative journal Reason was quick to note, “There is no plan to balance the budget.”

According to the CBO, the Senate version of the domestic spending bill, which is what ultimately was signed into law, is estimated to increase the federal budget deficit by $3.4 trillion over the period 2025-2034. Increasing federal debt could result in increases in interest rates to borrow from banks and other lenders, making consumer home and car loans more expensive. And of course the government itself will spend more to finance its debt; the CBO predicts federal interest costs to exceed $1 trillion per year.

The topic of federal debt and deficits is a complicated one. Consistent with the applause for Trump’s budget balancing rhetoric in his address to Congress, historically Republicans have regularly used the specter of budget deficits as a cudgel to beat back Democratic party proposals for federal social welfare spending and other government investment. A rhetorical device regularly used by the deficit “hawks” is to compare the federal budget to a household budget. In his 1997 book Do Deficits Matter, Daniel Shaviro addresses this analogy. Household budgets could not likely continue at a deficit for decades at a time “without raising a serious prospect of default,” he writes.

The main distinction is that the federal government with its power to raise taxes and print money faces less default risk than would a household that regularly spent more than it took in. In addition, [government] debt is mainly internal, owed by American taxpayers to American bondholders (two groups that overlap).

It is not so much the risk of default, Shaviro writes, as the challenge of what he calls policy sustainability – “our ability to meet current commitments that are not quite as definite as the pledge to honor government bonds.” Both national debt and the long term insolvency of Social Security and Medicare programs make sustaining current fiscal policy difficult.

Shaviro identifies the following key issues arising from federal budget deficits:

• Generational equity: “… concern about unduly benefiting current generations at the expense of future generations."
• Macroeconomic concerns: Once advocated by Keynesians as a cure for recession and unemployment by way of increasing consumer spending, deficits are now blamed for a declining national savings rate, among other effects.
• Size of the federal government: “Some supporters of limited government identify deficit spending as a major cause of undesirable government growth.”

A common underlying assertion is that deficit spending makes current consumers and voters feel wealthier, by reducing the perceived cost of government spending in the current timeframe. Shaviro suggests that for a budget deficit to have the claimed effects it should be a “meaningful economic measure,” which he asserts it unfortunately is not. The key shortcoming of budget deficit as an economic measure, says Shaviro, is that it is measured on a cash basis rather than an accrual basis. Shaviro’s example considers someone who pays $1000 today in exchange for a promised $1 million next year (assuming the transaction is not treated as a loan). Under cash basis deficit accounting they could be criticized for increasing their deficit. Conversely someone who received $1000 today in exchange for a promise to pay $1 million next year could be praised for reducing the deficit. The example seems silly, but illustrates the shortcomings of considering deficits from a cash flow perspective. 

First, it encourages ignoring the approach of unfunded spending commitments, as under Social Security and Medicare. Second it encourages legislative responses that, over the long term are meaningless, or even make the government’s fiscal posture worse…. [P]olicy changes … that reduce deficits in the short term while increasing them for “out years” beyond the estimating window have been a feature of all major deficit reduction initiatives in Washington. Third, … the long term elements of such policy that the deficit ignores may matter. Unless people are highly myopic, their expectation regarding how much the government will pay or take from them in the future should affect their current behavior. 

Economists have proposed ways of measuring government cash flow that better reflect the real-world effect of tax and spend policies – for example, Lawrence Kotlikoff’s “generational accounting,” which measures expected taxes and expected outlays by age group. For our purposes we will simply note the hypocrisy of Republicans cheering rhetoric about balancing a budget, but actually passing legislation that will increase the deficit by trillions. As Jeffrery Frankel of Harvard’s Belfer Center noted in 2021, “Republicans Fight Deficits Only When a Democrat is President.”

Some of the largest expenditures in the bill go to Trump’s and Stephen Miller’s pet projects – the border wall, and deportation. Approximately $175 billion is targeted for immigration, including nearly $50 billion to finish the border wall “most of which” Trump claimed last year he had “already built.”

Daniel Costa of the Economic Policy Institute spoke to NPR’s A. Martinez about the effects of the huge increase in funding for Immigration and Customs Enforcement (ICE). In addition to the border wall, Costa describes $30 billion targeted to “enforcement operations” – which roughly triples the current budget – and $45 billion to build detention centers, up from the current budget of $3.4 billion. Responding to a question from Martinez, Costa notes that Congress had not “put very much oversight into the bill,” and that the administration had “fired many of the inspectors general who do this type of oversight.” Costa continues:

… [T]he level of intrusion, I don't think people can wrap their brains around it yet. You're going to see ICE agents at schools, at parks, at hospitals, at car washes, at grocery stores, really just about everywhere where immigrants work. And we should remind people, 1 out of every 5 workers in the country right now is an immigrant.

In a private communication to Talking Points Memo’s Josh Marshall, Harvard sociologist and political scientist Theda Skocpol warns that the huge windfall handed to ICE provides a way for Trump and Miller to circumvent the built-in protections against what she calls “coercive takeover” of state and local police agencies – something that was a precursor to authoritarian takeovers in Hungary and German in the 1920s and 30s.

Immigration is an area where a U.S. President can exercise virtually unchecked legal coercive power, especially if backed by a Supreme Court majority and corrupted Department of Justice.  Now Congress has given ICE unprecedented resources – much of this windfall to be used for graft with private contractors Trump patronizes, but lots … to hire street agents willing to mask themselves and do whatever they are told against residents and fellow American citizens.  The Miller-Trumpites are not interested only in rounding up undocumented immigrants.  They will step up using ICE and DOJ enforcements use to harass Democrats, citizen critics, and subvert future elections if they can.
 
This is the key story unfolding right now.  Governors and civic groups and media outlets need to get clear on this imminent threat and work together across the board to reveal and push back against the emerging ICE police state.