Senate budget: Meaner cuts, higher debt

Despite all the chest beating and posturing, the budget entrepreneurs on the Senate Finance Committee found a way to tax the poorest Americans more and increase the debt more than the House.

The image in this post is from former Sec. of Labor Robert Reich’s analysis of the new Senate-proposed changes to the House budget bill. And here’s the CBO’s analysis of the impact on earners before this latest Senate proposal cutting Medicaid even more. Multiple online analyses of the Senate version are rolling out rapidly; please read them. Do not depend on just this post—we’re working as fast as we can and will add updates, but there are bound to be omissions and errors due to Congress’ intent to get this passed quickly with limited disclosure or discussion. Like others, we’re rushing to get it out. Also see our prior budget updates here and here for much more detail and analysis. Finally, note we’ve used some paywall-defeating links in this article; give it a minute or two if you experience delays.

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Why are cuts so critical?

It would be terrific to say the cuts are primarily to decrease our record debt or wealth gap. But as everyone in Congress knew at the start, the cuts are primarily to find the $1.3 trillion required to make Trump’s 2017 tax cuts permanent. Remember: There’s a lot of data now on what that earlier tax cut accomplished for different income brackets; we’ve covered that in prior posts. Essentially, the top 5% of wage earners ($450,000+/year) got almost half the benefit of the tax cut. To bring the new impact current, here’s what the CBO had to say last week about the impact of this new budget bill as proposed by the House before the impact of yesterday’s Senate proposals.

• Top earners: The top decile earners (roughly top 10%) get an increase from the tax cut of about $12,000 amounting to 2.3% of their projected income.

• Middle income: Households in the fifth and sixth deciles would see their resources increase by $500 or $1000 (0.5% or 0.8% of projected income).

• Lowest decile: Will pay—lose—about $1,600 per year, or about 3.9% of their income.

Yes, you read that right. The lowest ~10% of earners (and essentially the 20% to 40%) will pay for middle income earners to get a modest bump from the tax cut, and for the highest earners to get a $12,000 bump, or about 4% more income. And it will increase debt at the same time; keep in mind we’re now paying more on debt interest annually than for defense.

“This is caviar over kids, and Mar-a-Lago over the middle class.” —Sen. Wyden (D-OR)

Bottom line on the new Senate version of the budget bill

The Senate treated the House budget bill as an opening bid, and their new version has even deeper cuts to Medicaid—increasing America’s uninsured by more than 60% and now also slashing where they can get care of any kind—and a trillion dollars more for debit than the House version. Because of the power dynamics between the two chambers and the GOP self-imposed deadline to get the bill on Trump’s desk by July 4, the Senate bill is more likely to become law, and quickly.

Timing

There are only three regular Congressional work days left before the holiday, and both the Senate and the House must vote this week to meet the deadline, although Sen. Majority Leader Thune (R-SD) is already threatening to roll into the July 4 recess to get the bill on the president’s desk. ***Expect this bill to move very quickly before details are clear enough for resistance and lobbying to take hold, before members can even actually read and integrate the entire bill.*** There is still scattered resistance in the Senate¹ and the Senate and House can each only afford to lose three votes². Speaker Johnson showed exactly how to force feed a bill through the House in May, giving members <24 hours to review and integrate 1,100 pages of the complete bill before the vote, which even MTG whined about for an hour or so.

CONTACT YOUR SENATORS AND REPRESENTATIVES NOW.

Most significant changes

MEDICAID

In addition to the House devastation of Medicaid—a CBO projection of an 62% increase to America’s uninsured before Senate additions—the Senate is adding a twist that will further decrease federal Medicaid funds to states. They’re proposing decreasing the amount of taxes health care providers can claim, triggering lower federal funding of Medicaid. Currently, states charge taxes to health care providers that the providers then recoup through higher Medicaid payments (known as DSH), which yield additional federal spending on state Medicaid programs. The Senate bill would almost halve provider taxes and therefore greatly decrease the federal contribution.³

That will most impact two types of health care the most: rural states, heavily dependent on Medicaid, and safety net hospitals. This provision would hasten the already rapid rate of rural hospital closures, which are heavily dependent on Medicaid, and put pregnancies at even greater risk than our current abysmal, internationally-embarrassing maternal mortality rates. One out of three US counties is already without OB services. The further women are from care the higher their medical risk, so the more they pause over pregnancy at all (remember the record US low birth rate and theoretical desire to increase it).

Safety net hospitals—almost always non-profit or public—accept all patients regardless of income. Decreasing the provider tax would slash the care offerings and research of every highest care level medical and trauma center, every teaching hospital and every university medical center, and any non-profit hospital in your area. Employment will be at risk; the non-profit support and contributions these institutions give back to communities will be at risk. And decreasing those federal monies will in turn negatively impact medical, nursing and other healthcare education programs forever. If passed, this would have a major impact on care in both the short and long terms and is likely to get sigiificant attention⁴ IF there is time to fully understand the impact before final Senate and House votes occur. (Update: Hospitals stunned by Senate GOP’s Medicaid plan.)

DEBT

Congress is also staring down a midsummer deadline to raise the nation’s debt limit, the amount of money the federal government can borrow to pay for already authorized spending. If lawmakers don’t act to increase the borrowing cap, the country faces a devastating default; with the GOP controlling Congress and the White House, they’re not going to let that happen on their watch. The Senate proposes using the bill to raise the debt ceiling by $5 trillion, instead of the $4 trillion adopted by House Republicans. We’ve also covered the hard data on that in prior posts like this one.

ENERGY CREDITS

The Senate’s version would also end the $7,500 tax credit for electric vehicles within 180 days of the legislation being enacted and calls for an end for subsidies to wind and solar and ends a credit for companies that lease rooftop solar systems as well as homeowners who buy them outright.⁵ The elimination of the credits would decimate the already reeling solar industry, with the uncertainty of the fate of the clean energy incentives already causing disruption in the market. Here’s what that would look like in one (red) southern state alone. The House Freedom Caucus—loud and then submissive when Daddy got mad—is deeply opposed to extending any green credits, so we’ll see where that goes.

PERMANENT BUSINESS TAX BREAKS

The Senate measure offers bigger tax benefits for corporations, proposing to make permanent a set of generous deductions for research and development and other expenses, including machinery purchases. The measures were set to expire at the end of the year, and the House had proposed to extend these measures on a temporary basis.

CHILD TAX CREDIT

The House wanted to increase the maximum benefit for the child tax credit, a tax break for families with qualifying children, to $2,500; the Senate bill cuts it to $2,200 while tying it to inflation, although the Senate bill expands the dependent-care assistance program.

GUNS AND SILENCERS (Yes, really)

A little-discussed provision in the House bill “intended to excite gun-rights advocates and outrage gun-control activists” partially repealed part of the National Firearms Act of 1934 by getting rid of a tax on silencers. The new draft of the Senate Finance Committee’s budget bill expands that, completely completely removing silencers as well as short-barrel rifles and shotguns from the NFA, eliminating taxes and requirements for registration.

SALT (State and Local Tax Deduction)

Unlike the house, there aren’t any Rs in the Senate from impacted blue states, so no Senate dogs in that fight … SALT goes back to the original $10K from the House proposal of $40K. Five bipartisan blue state House members pushed hard for a higher deduction, and the House can only afford to lose three votes, but in the final vote what will matter is that an increase would primarily benefit blue states. House members get to say they tried.

OTHER TWEAKS

As of four days ago, the Senate proposal added broadband funding that favors Musk’s Starlink and still includes the House’s ban on states passing AI laws for 10 years. The latter caused an immediate uproar when it was in the House bill. The National Law Review and more than 260 state legislators from all 50 states immediately opposed it amid Senate concerns … and then the opposition suddenly went dark. I’ve searched multiple articles about the Senate bill today and can’t find anything about the AI law; keep an eye on that. Something’s going on there.

A handful of Trump's key campaign promises would be scaled back under the Senate's version of the bill. The bill creates new deductions for taxes on tips, overtime pay and car loan interest — a priority of Trump’s that he campaigned on — but doesn’t make them fully deductible. Tips are deductible up to $25,000 through 2028 for those making <$150,000. Overtime pay is deductible up to $12,500, or $25,000 for joint filers, through 2028. Auto loan interest is deductible up to $10,000, also through 2028.

Facing what would have looked like a tax increase if the 2017 tax cut expired this year⁶, the Senate makes permanent several one-time … um … bribes?⁷ The new Senate legislation proposes granting a $6,000 tax deduction for older voter/donors Americans, up from the $4,000 deduction included in the House bill, and also a one-time $1,000 increase for individuals and $2,000 for married filers taking effect in the 2026 tax year, while their House counterparts would offer the extra amounts but only through 2028.

What’s next

Expect quick, forceful, take-no-prisoners action from the White House and the Senate, with the House squawking but falling in line. CONTACT YOUR SENATORS AND REPRESENTATIVES NOW IF YOU WANT YOUR INPUT TO BE HEARD. LATER WILL BE TOO LATE; THE PRESSURE ON CONGRESS TO ACT VERY QUICKLY IS IMMENSE.

Here’s what a large poll (N=1,167, 3% +/- error rate) found before the Senate released its version:

And here’s what the first online poll returns from today’s story on the Senate bill in the center-left rated The Hill looked like. While this an early—and therefore small—poll, considering both polls, if you don’t like the way this budget bill is going, it looks like you might not be alone. Act now or deal with the impact on you, your kids, and your grandchildren for the next decade.

1. Sen. Rand Paul (Kentucky) has opposed the legislation because it raises the country’s debt limit. Sens. Susan Collins (Maine), Josh Hawley (Missouri), Jerry Moran (Kansas) and Lisa Murkowski (Alaska) have voiced concerns over cuts to Medicaid—but the waffling started even before the Finance Committee released their draft.

2. While the House can only afford three defections, the House version only passed by one vote in May. Reps. Massie (R, KY) and Warren (R, OH) voted against the House bill: here’s why.

3. The new meaning of “states’ rights:” Let them eat the costs the feds used to pay.

4. You have to suspect the various hospital, medical education and physician organizations will lobby hard against this if they can move fast enough. If you’re at all concerned about where the 62% more uninsured will get care, this should concern you; if nothing else, consider it will certainly change the complexion of for-profit hospital emergency rooms when the uninsured have no public option for care. And it will absolute affect both care quality and provider education programs. Safety net hospitals—most often public or non-profit—usually have high volumes because they do accept everyone regardless of ability to pay. High volumes are tied closely to better outcomes for all (including raising the bar in the community for other hospitals) and often provide the teaching base for physicians, nurses, and related healthcare specialties. Lowering the amount of tax claimed will have a major downstream effect on the entire community and—because of the impact on medical education—eventually you and me, no matter where we get our care.

5. Remember: 18% of the US population is over 65, but it’s 50% of the Senate, where the median age is 64.7 years. As we’ve seen over and over with social media hearings, the Senate relies on old-school thinking. (Note I’m a Boomer, but I don’t live in the past.)

6. Rep. Chip Roy (R-TX) last week on legislation that includes tax cut expiration dates: “There’s a total tax cliff in [this bill.] There’s about $1.5 trillion worth of taxes that expire in four years, five years, which means what? In five years, they’ll just keep them going. This is why we end up with the same problem … It is 100 percent a gimmick to have tax cuts that you’re putting in place for four or five years.”

7. Here’s money for you upfront; don’t worry about the other details on this friendly little bill.