House Passes Reconciliation Bill Including Quick Elimination of Wind, Solar Subsidies – but when?

Key Provisions of the Bill

• Extension of 2017 Tax Cuts and Jobs Act (TCJA): The bill makes permanent the individual income and estate tax cuts from Trump’s first term, set to expire in 2025. This includes maintaining lower tax rates, higher standard deductions, and other TCJA provisions.
• New Tax Exemptions:
  • Eliminates taxes on tips, overtime pay, and interest on certain auto loans, targeting working-class voters.
  • Temporarily eliminates taxes on Social Security benefits, benefiting seniors.
• Estate Tax Exemption Increase: Raises the estate tax exemption to $15 million (from $13.6 million), with annual inflation adjustments.
• Child Tax Credit Expansion: Increases the credit by $500 to $2,500 for 2025–2028, then reverting to $2,000, with future inflation adjustments.
• Business Tax Provisions:
  • Makes the Section 199A pass-through deduction permanent, increasing it from 20% to 23% and modifying limitations.
  • Permanently allows 100% bonus depreciation for certain investments.
  • Maintains the corporate tax rate at 21% and preserves international tax provisions like GILTI, FDII, and BEAT.
• State and Local Tax (SALT) Deduction: Increases the SALT deduction cap, a key demand from Republicans in high-tax states like New York and New Jersey.

• New Spending Allocations:
  • $350 billion in new spending, including $150 billion for Pentagon projects like the “Golden Dome” defense shield and $200 billion for mass deportation and border security initiatives, including funding for Operation Lone Star in Texas, checkpoint upgrades, and CBP bonuses.
  • $104 million for state motor vehicle departments to implement new regulations.
• Debt Limit Increase: Raises the federal debt ceiling by $4 trillion to accommodate the bill’s costs.
• Spending Cuts:
  • Reduces Medicaid spending by nearly $700 billion through new work requirements (80 hours/month of work, education, or service for able-bodied adults without dependents) starting in 2026 and stricter eligibility checks.
  • Cuts $300 million from the Supplemental Nutrition Assistance Program (SNAP) to offset tax cuts, introducing work requirements and eligibility restrictions.
  • Repeals or fast-tracks the expiration of clean energy tax credits from Biden’s Inflation Reduction Act.

• Border Security and Immigration:
  • Funds mass deportation programs and border security enhancements, including technology, infrastructure, and law enforcement grants.
  • Penalizes states providing Medicaid to undocumented immigrants.
• Energy and Infrastructure:
  • Streamlines natural gas permitting to boost energy production.
  • Expedites permitting timelines and judicial reviews for energy infrastructure projects.
• Technology and Innovation:
  • Promotes AI development and removes regulatory barriers to innovation.
  • Modernizes the National Airspace System for aviation advancements.
• Defense Oversight: Allocates $10 million to the Department of Defense Inspector General to monitor programs, including those involving classified matters.
• Healthcare and Social Programs:
  • Introduces Medicaid co-pays for some recipients above the poverty line and enhances fraud prevention measures.
  • Implements work requirements for SNAP beneficiaries.

Economic Impact

• Revenue and Deficit Implications:
  • The Joint Committee on Taxation estimates the bill’s tax cuts could cost $5 trillion over 10 years, while the Congressional Budget Office projects a $3.8 trillion increase in the federal deficit, contributing to a national debt exceeding $36.2 trillion.
  • The Tax Foundation’s preliminary analysis suggests a 0.6% long-run GDP increase but a $4.1 trillion revenue reduction (2025–2034) on a conventional basis, or $3.3 trillion dynamically, accounting for growth.
  • Moody’s downgraded the U.S. credit rating in May 2025, citing rising debt, which sparked investor concerns and a stock market dip.
• Economic Growth:
  • Proponents argue the tax cuts, deregulation, and energy provisions will spur growth, with Vice President J.D. Vance claiming 3–4% GDP growth could address long-term debt.
  • Critics, including Democrats, warn that cuts to Medicaid and SNAP could harm low-income families, farmers, and healthcare access, potentially offsetting economic gains.
• Sector-Specific Impacts:
  • Small businesses benefit from permanent deductions and lower tax rates, with the National Federation of Independent Business calling it one of the most pro-small business tax bills in recent history.
  • The wireless and equipment industries support provisions like spectrum allocation and bonus depreciation, expecting job creation and innovation.
  • Energy sectors, particularly natural gas and aggregates, gain from streamlined permitting and tax protections.

Political Dynamics and Challenges

• Narrow Passage and GOP Divisions:
  • The bill passed with a one-vote margin (215-214), highlighting GOP internal divisions. Two Republicans, Thomas Massie (KY) and Warren Davidson (OH), voted against it, and Andy Harris (MD) voted “present.” Two others, David Schweikert (AZ) and Andrew Garbarino (NY), did not vote.
  • The House Freedom Caucus, led by Chip Roy (TX), initially blocked the bill in the Budget Committee, demanding deeper spending cuts, faster Medicaid work requirements, and immediate repeal of green energy subsidies. They voted “present” on May 18 after securing concessions.
  • Moderates from high-tax states (e.g., Mike Lawler, NY) pushed for larger SALT deductions, increasing costs and clashing with fiscal conservatives.
• Negotiation and Concessions:
  • Speaker Mike Johnson negotiated changes, including accelerating Medicaid work requirements to 2026, expanding SALT deductions, and adding immigration enforcement funds, to unify the GOP.
  • Trump’s direct involvement, including Capitol Hill visits and Truth Social posts, pressured holdouts, though he couldn’t sway all dissenters.
• Democratic Opposition:
  • Every House Democrat voted against the bill, criticizing cuts to Medicaid and SNAP as harmful to vulnerable populations. Rep. Jim McGovern (D-MA) called it a giveaway to billionaires at the expense of healthcare and food security.
  • Democrats proposed amendments to restore healthcare and food assistance, limit tax cuts to those earning under $400,000, and protect NIH grants, but all were defeated in the Rules Committee.
• Senate Outlook:
  • The bill faces uncertainty in the Senate, where Republicans hold a slim majority. Senators like Josh Hawley (MO) oppose Medicaid cuts, citing harm to low-income constituents, while others seek deeper spending reductions or different tax priorities.
  • Senate tweaks could complicate final House passage, with some, like Sen. Ron Johnson (WI), predicting the bill may “sink” due to economic concerns like tariffs and debt.
• Public and Interest Group Sentiment:
  • Nearly 1,000 organizations, including the National Federation of Independent Business, CTIA, and America First Policy Institute, endorsed the bill for its pro-growth and security provisions.

  • Posts on X reflect polarized views: supporters like

    @Micro2Macr0

    celebrate its rapid progress and tax relief, while critics like

    @chiproytx

    highlight debt concerns and delayed reforms.

Analysis

• Strengths:
  • The bill fulfills key Trump campaign promises, including tax relief, border security, and deregulation, aligning with the GOP’s “Make America Great Again” mandate.
  • Its reconciliation framework bypasses the Senate filibuster, requiring only a simple majority, increasing passage odds.
  • Broad industry support and targeted tax breaks (e.g., no tax on tips) appeal to small businesses, workers, and seniors, potentially boosting GOP voter support.
• Weaknesses:
  • The $3.8–$5 trillion deficit increase raises fiscal concerns, especially after Moody’s downgrade, risking economic instability and GOP voter backlash.
  • Medicaid and SNAP cuts, while offsetting costs, may alienate low-income voters in Republican-leaning states with high poverty rates (e.g., Alabama, Oklahoma).
  • Internal GOP fractures, evident in the close vote, signal ongoing challenges in maintaining party unity for future legislation.
• Opportunities:
  • Successful Senate passage could cement Trump’s legislative legacy early in his term, building momentum for further reforms like tariffs and deregulation.
  • Economic growth from tax cuts and energy deregulation could validate proponents’ claims, strengthening GOP economic arguments.
• Threats:
  • Senate revisions may force House renegotiations, delaying or derailing passage, especially with a July 4 target set by Trump.
  • Public backlash over social program cuts could fuel Democratic opposition in 2026 midterms, particularly in swing districts.
  • Economic risks, including tariff-related uncertainty noted by Sen. Ron Johnson, could undermine the bill’s growth projections.

Conclusion