One, Big Beautiful Analysis of the GOP’s Tax and Spending Bill

Thank you for joining us on this one big, beautiful Saturday morning.
 
Today we’re diving into President Donald Trump’s signature domestic policy: the One Big Beautiful Bill Act, which we’ll abbreviate through the rest of this piece as “BBA.”
 
Everywhere you look, there’s an opinion. The BBA is a cruel redistribution of federal resources that will ultimately undo Trump’s second term. Or the BBA will usher in a long-awaited Golden Age for America, unleashing growth not seen in decades that will refund the short-term deficits it creates and then some.
 
Who is right? Well, that’s probably hard for any observer to say with any certainty because missing from much of the coverage is a comprehensive look at what’s actually in the nearly 900-page bill. We offer that for you below, together with commentary from both sides of the aisle.
 
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The key sections of the bill can be broken up into fiscal policy, health policy, defense, immigration, and energy. We’ll take each in turn.
 
Fiscal Policy
 
The bill’s headline impact is on tax and fiscal policy. Crucially for the Trump agenda, the measure permanently extends many of the tax changes made in Trump’s 2017 Tax Cuts and Jobs Act, and introduces new deductions for tips and overtime.
 
The BBA makes permanent the income tax rates that have been in place since 2017, with scheduled upward inflation adjustments for middle-income brackets and the standard deduction. Controversy in this section of the BBA centered on the treatment of the state and local tax deduction, or SALT. To win support from high-tax blue state Republicans, the bill increases the SALT deduction cap from $10,000 to $40,000.
 
The BBA repeals some “green” tax credits introduced during the Biden administration, including credits for electric vehicles and residential energy. Importantly for businesses, the BBA permanently allows immediate R&D expensing as well as other favored single-year depreciation provisions for companies both small and large.
 
(For more details, see this rundown from the Tax Foundation.)
 
These tax code changes are expensive. Budget forecasters look at fiscal implications relative to what the law would have been without the BBA, and many of the 2017 tax cuts were set to expire this year. The Tax Foundation reckons the tax provisions by themselves will reduce federal revenue by $5 trillion over the next 10 years, while increasing GDP above baseline by roughly 1.2% annually.
 
Health Policy
 
The BBA has sweeping implications for state Medicaid budgets. Some political observers view this section of the bill as an area of political vulnerability for Republicans.
 
The BBA imposes work (or “community engagement”) requirements for Medicaid recipients, a provision that’s popular with voters. It also restricts access to Medicaid for some types of immigrants.
 
The headline change, though, deals with funding that the federal government provides to states for Medicaid, and to the mechanisms by which some states (including North Carolina) finance the Medicaid expansion population.
 
North Carolina, in part, funds Medicaid expansion through a tax on providers, most notably hospitals. The BBA gradually phases in a cap on the provider tax that North Carolina imposes, bringing it well below the level needed to fund Medicaid expansion.
 
That will create a budget hole beginning in 2028 that will grow larger until 2032, when the cap is fully phased in. Sen. Thom Tillis cited this issue as his reason for opposing the BBA. North Carolina policymakers will need to find a way to either fill that hole or end Medicaid expansion, but they have at least two years to sort it out.
 
In general, Medicaid spending is an increasingly expensive proposition for both the federal government and state governments. At the federal level, spending on Medicaid has nearly doubled over the past 10 years.
 
Earlier this week, Treasury Secretary Scott Bessent said, “Only in D.C. is a 20% hike to Medicaid over 10 years considered a ‘cut.’ Medicaid should focus on helping the vulnerable people it was designed for. Work requirements are broadly supported by the public and already implemented in many states. Able-bodied adults are not vulnerable.”
 
Defense and Immigration
 
While the BBA cuts federal spending in some areas, it increases defense spending by about $150 billion. Sen. Roger Wicker, who chairs the Senate Armed Services Committee, said the bill is a “down payment on a generational upgrade for our nation’s defense capabilities.” According to the Council on Foreign Relations, the bill’s defense spending focuses on shipbuilding, defense supply chains, and missile defense.
 
The BBA also increases spending for immigration enforcement by about $170 billion, including a massive injection for ICE. The funds will be used to expand the country’s ICE detention centers, hire more ICE agents, and continue construction of a wall on the Mexican border.
 
Energy
 
Whether you agree with his policy or not, the BBA operationalizes Trump’s pledge to “unleash” American energy. It expands oil and gas leases on federal property and cuts environmental requirements for some of those projects. It also funds icebreaker ships to support energy exploration in the Arctic.
 
Not surprisingly, the BBA rolls back Biden-era initiatives focused on renewable energy, including tax credits to incentivize solar and wind production.
 
Reactions
 
Also, not surprisingly, reactions to the BBA largely fall along partisan lines. We’ve copied below some of the statements from prominent economists and thought leaders:
 
Larry Summers, economist: “The Big Beautiful Bill’s addition of trillions to the national debt needlessly risks, but certainly does not guarantee, stagflation or financial crisis. For sure though, giving a million dollars on average to the richest one in 1,000 families and paying for it by denying healthcare and basic social services like rides to doctor appointments is grotesque. The BBB is by far the biggest rollback of the social safety net in our history.”
 
Scott Bessent, Treasury Secretary: “The passage of the One, Big, Beautiful Bill has set the stage for the coming Golden Age as we prepare to celebrate the 250th year of our great nation. . . The One, Big, Beautiful Bill will unleash the full potential of the U.S. economy. It locks in permanent, pro-growth tax cuts for families, workers, and job creators. The bill also enacts No Tax on Tips, No Tax on Overtime, and new tax cuts for seniors. The OBBB will strengthen important programs for those who need them most and save taxpayer dollars by cutting waste, fraud, and abuse. This consequential legislation cements the blue-collar boom and improves the lives of Americans on every rung of the economic ladder.”
 
Tyler Cowen, columnist: “I view the Big Beautiful Bill of Trump as one of the most radical experiments in fiscal policy in my lifetime. In essence, Trump has decided to push all of his chips to the center of the table and bet on the American economy. I would not have proposed this bill, as critics are correct to note that it increases the estimated U.S. debt by $3 to $4 trillion over the next 10 years. That is a massive boost in leverage at a time when America’s fiscal position already appeared unsustainable.”
 
Christopher Caldwell, author, “The Age of Entitlement”: “Trump’s bill, whatever one thinks of its priorities, really does cut spending: It lops as much of Obamacare as the public wants lopped. And it does so largely by restraining Medicaid. That’s a core federal entitlement. In other words, this bill has, for the first time, breached the debt-generating heart of the welfare state. If it works, a more confident Republican party can return for more savings. If it doesn’t work, they’ll get two stern messages: first from markets, then from voters.”