How Speaker Mike Johnson Passed the GOP's 'Big, Beautiful Bill'
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Speaker Mike Johnson manages to pass the House version of the GOP's reconciliation bill titled the One Big Beautiful Act in a squeaker of a vote 215 to 214. What is all in this legislation, the beautiful parts and the ugly ones? How was it amended during the last late negotiations? And how is the Republican Senate now likely to respond?

Welcome, I'm Kyle Peterson with The Wall Street Journal. We're joined today by my colleagues, editorial board member Kate Batchelder-Odell and columnist Alicia Finley. The final House resolution package, weighing in at about 1,100 pages, was passed shortly before 7 a.m. this morning, according to the House clerk.

Two Republicans voting no. One voting present. That was Andy Harris of Maryland, the House Freedom Caucus chair, and a couple of others missing in action. A spokesman for Congressman Andrew Garbarino of New York said this. After sitting through proceedings all night, the congressman briefly stepped out and inadvertently missed the vote. Went on to say this is one of many reasons why governing should happen in the light of day, not in the dead of night.

Speaker Mike Johnson with a slightly different recollection telling reporters he fell asleep in the back. No kidding. And adding, I'm just going to strangle him, but he's a dear friend. Maybe the house speaker needs to be passing out some more energy drinks this morning. But that aside, uh,

A big moment for Speaker Mike Johnson managing to thread this needle between all of these Republican factions wanting different things out of this bill. Let's listen to a segment of Speaker Johnson this morning right after this bill was passed. We have 220 Republicans in the House Republican Conference and lots of different opinions that represent very different districts around the country with very different interests.

But the principle and the philosophy is always the same. Everybody's conservative. We believe in limited government, and we believe in individual freedom and the rule of law and peace through strength and fiscal responsibility and free markets and human dignity, the things that are all wrapped into this bill. And so I would say there was a lot of pivotal moments. One day I might actually write a book about the last year of my life and trying to get this thing over the line.

And here's a word for one of those no votes, the dissenter Thomas Massey on the House floor after midnight this morning. Well, I'd love to stand here and tell the American people we can cut your taxes and we can increase spending and everything's going to be just fine. But I can't do that because I'm here to deliver a dose of reality. This bill dramatically increases deficits in the near term, but promises our government will be fiscally responsible five years from now. Where have we heard that before?

How do you bind a future Congress to these promises? This bill is a debt bomb ticking. Kate, we've talked in recent episodes about some of the details, particularly about the tax provisions in this bill, but it might be useful now that the House has passed the whole enchilada here to step back

and examine what else is in this. There's a lot, many pieces of this, some of them good policy, some of them not so good policy. But what are a few of the big points that you think are worth mentioning? Well, I think you're right that the Medicaid and tax provisions have absorbed most of the attention. And we'll get into some of what was changed in those titles at the last minute as the House pulled this thing across the floor. But up at 30,000 feet, I think there are a couple big

achievements in this bill that have gotten a lot less attention than the taxes and Medicaid issue. The first one is, is that the bill increases defense spending by about $150 billion. This is, I think, a valuable down payment on expanding the U.S. ability to build ships, to build aircraft. The shipbuilding investment in it is worth about a dozen ships and the Navy is far too small and we are falling short in trying to deter a shooting war in the

But it also jumpstarts kind of technological innovation for our defense forces. I mean, we're learning a lot in Ukraine about the future of warfare. And this tries to take the best of what we learned in electronic jamming, in the use of drones, and try to get those in use for American forces effectively.

quickly and field them fast and build more munitions and a mix of munitions so that we're not shooting million dollar missiles at inexpensive drones. I mean, we have a lot of problems in how we're defending ourselves. And this bill, I think, is a very thoughtful Republican effort to start to deal with that problem. I think Roger Wicker, the Senate Armed Services chairman, he has been arguing that we need to get back to 5% of GDP on defense spending. We're at 3% now. And this bill doesn't obviously go to 5%, but it is a good start on that.

And it is an example of something that wouldn't have happened if Kamala Harris had won the election. Biden proposed a cut in defense. All four years he was in office, even as he was telling us that what was going on in Ukraine was a struggle for the future of the world, he never backed that up. And so I think this is something that for all, you know, Donald Trump can be a bit of a whirlwind. But here in this defense portfolio, this is something that will hopefully deter conflict and make the world a calmer place.

Real quick, the second other top line on this that I think is important is that there is a little bit of welfare reform in this bill that is in the tradition of kind of the 1990s bipartisan welfare reform in Congress. And that comes mostly through food stamps. People who are receiving help buying groceries are supposed to work if they're able-bodied

But states have basically waived away this requirement. The Biden administration allowed California to waive its entire state able-bodied work requirement away for two years, about a week before it left office. So functionally, there's no requirement that people work in exchange for benefits. And so the House tried to tighten that up, asked states to pick up a share of the tab for food stamps benefits.

And it really is notable because Democrats, I think, have completely abandoned since the 1990s this part of the social contract that you should work as a condition of benefits. And again, this is for people who are able-bodied, not for seniors, not for those who are pregnant, not for those who are receiving treatment for substance abuse. It includes a lot of reasonable exceptions.

But the goal is for benefits to be a temporary help and to get people back in the private economy and not needing this assistance anymore. So those are two big examples, Kyle, of where I think the bill is very constructive and not getting the attention that it deserves. Hang tight. We'll be right back in a moment.

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Welcome back. Alicia, what does the bill do on Medicaid? That had been a heated topic of debate, including within the House Republican conference. So where did a majority of House Republicans land when they passed this final package?

Well, there are some modest reforms. To Kate's point, it imposes work requirements, and these are for the able-bodied, working-age population that was covered by Obamacare. They'd have to either work at least part-time 20 hours a week or volunteer. The initial bill didn't have those kick in until 2029, but Chip Roy pushed to his credit to move them up because whenever you have delays, things inevitably get knit.

And it would have been likely that if the 2029 date had remained, that Democrats would have just repealed it in total if they got control of Congress or the White House in early 2029.

Now, the bill also froze hospital provider taxes. And this is kind of a scam, actually, no less than Joe Biden described it as a scam when he was vice president and the Congress was considering ways to reduce the deaths as part of the Simpson-Bowles Commission. And how this works is the states impose taxes on hospitals or other providers in order to extract more

more matching funds from federal government. These matching funds for the Obamacare population can be like nine times as much money. And so this has actually been a big driver of the federal spending growth along with the Obamacare population. So it freezes these taxes and prevents states from imposing new ones or raising the existing ones, but it doesn't actually roll any of the current ones back.

which is a bit of a disappointment, but at least it will discourage some of these states from adopting the Obamacare expansion because it means that they will be less likely or able to squeeze out more revenue from the federal government to pay for it.

There's rules that crack down and tighten eligibility standards to ensure that states aren't trying to game the rules to enroll more people than are actually eligible under the program. This, believe it or not, has been a big problem. You know, there was a

audit in California that found that a lot of California was enrolling about, I think it was 20% of the people that it had enrolled under the Obamacare expansion actually didn't qualify. And some were also traditional population, but they qualified traditional population, meaning as they may have been pregnant, disabled or such.

but they were qualified under the Obamacare population because that allowed the state to get more matching funds. So the bill makes some movement to address that problem. But overall, it was a bit of a disappointment because it doesn't change the matching rate that the federal government pays to states, $9 for every $1 that the state spent on the Obamacare population. So they didn't actually reduce that. Some of the

I wouldn't call them hardliners, more reformers had pushed for that. And I think that's something that the Senate may still try to look at. Now it kicks to the Senate. I think you will have some of the senators are more interested in broader reforms to the program. And this is the moment to do it, notwithstanding some opposition from Missouri Senator Josh Hawley.

Let's talk a little bit about how Republicans amended the bill in the last few days in these late night negotiations. One of them was on the SALT deduction. This is the federal deduction for state and local taxes already paid.

So someone living in a high tax state like New York, New Jersey or California can deduct their state taxes, their property taxes and so forth on a federal tax return. Kate, the 2017 Trump tax reform capped that at $10,000. In my view, that was one of the shining achievements of

of that tax reform in part because of the way the SALT deduction is an incentive for localities, states to raise their own taxes because they can get a dollar of revenue without inflicting a dollar worth of pain on their residents because those residents can then get some of that made up on their federal returns subsidized by taxpayers everywhere else in Texas and Florida and states that don't have income taxes.

What does the bill do on that $10,000 cap? The bill would basically blow it out to $40,000 for those who are earning less than $500,000 and then try to claw some of that back if you earn more. But basically, it really is a regrettable moment.

Republicans have wanted to get rid of the SALT deduction for decades. Ronald Reagan argued against it, but was unable to overcome the opposition to getting rid of it in the 1980s. So it really was an achievement in 2017, and it was the product of a lot of intellectual spade work.

and tax proposals from basically 2012 on to 2017 to get that coalition to cap that deduction. And also a big reason to do that is to encourage these states to make better policy and not just subsidize it from Washington. But you had now these group of lawmakers from New York and California who have been sending what I've been joking are magazine ransom letter notes saying we will blow up

the bill if you don't give us a huge payout in the SALT deduction. So given the narrow majority, Speaker Johnson perceived that he had to do that. I do have a mild bit of optimism on this one. I guess a small glimmer of hope I would offer is just when I call around the Senate, the politics of the SALT deduction are just much different. And the reaction that you get to a $40,000 cap is they're talking about what now over there?

And the reason for that is that the map is different and the Republican senators are largely from states that don't take advantage of this deduction and don't want to subsidize New York and California. So there isn't a comparable salt politics in the Senate, which I think will lead the Senate to trim back this deduction because, for one, it's really expensive for the bill to give this deduction.

benefit to affluent New Yorkers. And so I think you will see the Senate hopefully go back to, you know, lower it. Can they get back to lower than $30,000? I hope. And that may also be why you have seen so much extortion from these handful of lawmakers in the House, because they do expect that the Senate will trim it down. So that is a black eye on the bill. And the hope is that the Senate will rein it in a little bit because it just has so much less power and influence in the Senate. Hang tight. We'll be right back in a moment.

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Welcome back. Meantime, the objection days ago on the other side of the Republican spectrum by conservatives, we mentioned Chip Roy earlier, was that the provisions were spend now and save later. And Alicia, one of the ways that Speaker Mike Johnson and the Republican leadership seems to have addressed that concern is by changing some of the phase in and phase out dates

For example, the Medicaid changes phase in earlier than they would have originally, and also some tweaks to the phase outs of some of the Biden era Inflation Reduction Act green subsidies. Can you give us a sense of what the conservatives, Chip Roy and company got for their effort on that front?

So initially the phase out for these green subsidies, and we're really talking about two in particular, the clean electricity production tax credit and the clean energy investment tax credits. And they work two different ways, but they are mainly utilized by the solar and wind industries.

And the initial bill wouldn't start to phase out in 2029, and they would continue to be available to developers until 2031. What the changes do is the phase-out was pegged to the projects being in service by those years.

which allowed the developers, as long as they started or the projects were operating, then they could continue to qualify for at least the production tax credit for 10 years thereafter, because that's how that tax credit works.

So with the current bill or with that passed would phase in the expiration much sooner. It would require the projects to actually begin construction within two months of the bill's enactment. So basically it freezes new projects because you need kind of have to have all the project in the works already if you're going to end up starting construction within two months.

So it does haul new projects. Interestingly, Andrew Garbarino was one of the opponents of the faster phase in, and there's a big offshore wind project off his district and that he has been very supportive of. And so maybe that's why he just

managed to fall asleep during the vote. I want to emphasize how generous these tax credits were in the IRA. They could offset 70% of the investment cost of a project, which is just huge. And it made it very difficult for natural gas and actually nuclear plants to compete in these wholesale markets. And actually there was another tax credit for nuclear energy included in the IRA.

And the tax bill would also phase that one out. The tax charter was only necessary because of the wind and solar tax credit. So at least it makes a move in the right direction on killing these green energy subsidies that have been around for 30 or 40 years. And the industry had initially said that, well, these are infant technology and therefore we need subsidies, but they're no longer infants. They're grown up and they're still demanding essentially corporate wealth.

And so I'm glad that Republicans are now cutting off this bigot. The other big downside in my mind, Kate, is these new provisions for no tax on tips, no tax on overtime. I know that President Trump promised those on the campaign trail in 2024, but I do worry they are going to become bonanzas for lobbyists.

and tax writers as they try to figure out how the IRS is going to implement them, who's going to be covered. Many people, businesses are going to rearrange their affairs, not for real economic reasons, but to take advantage of these new carve-outs in the tax code. But Kate, overall, I mean, in any sort of legislation that is a thousand pages, there are going to be high points, sometimes big ones, and low points, and sometimes pretty low ones.

But what's your view? I mean, overall, is this a package that Republicans wanted to pass, needed to pass, especially given that the alternative is hanging out there, the expiration of those 2017 tax cuts at the end of this year, or at very least, if this had failed, the idea that Republicans would have to roll the dice and try to figure out a plan B?

I think the lesson for Republicans, particularly in the tax title, is that you need to organize your tax bill around Republican tax principles. I know it sounds a little bit elementary, but like I was talking about kind of the spadework that led up to 2017, the 2017 tax bill was really organized around growth, around lower rates on a broader base, and around permanence. I mean, they had to make some trade-offs, but those were the anchors. And the anchor was 21% corporate rate that is permanent and will continue even after this bill.

What happened here was a little bit more of cobbling together various things that different constituencies wanted, that President Trump felt were good politics, like no taxes on tips. And it will be, to your point, an enforcement nightmare. I mean, the language about how you can get this exemption if you are an industry that customarily accepts tips, we're going to find out everything that fits into the customarily definition of tips is just incredibly expansive information.

So I do agree that those are regrettable provisions. I also think that that's an opportunity where the Senate could excise one of them, because don't forget, there's also a larger deduction for seniors just because and a deduction for car loan interest. The president surely can declare victory with just one or two of those and doesn't need all four of them. The other one I would add for the Senate to take a look at is the newborn entitlement that the bill includes under these MAGA accounts.

where it starts to experiment with giving $1,000 for every new baby on paper. And if you talk to the budget scores, that doesn't cost very much, but it's really a risk of becoming an entire new entitlement because Democrats openly say, I mean, Cory Booker has said for years he wants a baby bond and he wants an annual contribution to it.

So the MAGA account might be worth excising because it really does have potential to grow into a much bigger entitlement. But one of the big disappointments of the tax title is that some of the expensing provisions that are good for growth, that lift incomes, they're not permanent in the bill. They only go until 2029. I mean, that should be the first priority of the Senate is making those provisions permanent because big risk of this bill is that you don't get the economy from 2019 that everybody remembers from Trump won and liked.

Alisha, we'll give you the last word, but as this process moves now to the Senate, I mean, any additional thoughts about what that might look like, where Republican senators might take it? I mean, I take some of the points that Kate makes, particularly on the SALT deduction. Not much of a SALT caucus over in the Senate with all those Republican senators from New York and New Jersey and California.

Right. So I think they're going to look at the Medicaid title pretty hard on this. And there is going to be some who are going to push for much broader changes, structural changes to Medicaid, though you'll probably also see Josh Hawley push back. He's already said he opposes the bill as it is, including the copays requirement that states charge copays for the Obamacare population. I think that they'll probably take most of the tax titles

as is, including all the no tax on tips, overtime, et cetera, because Trump has been pushing those as big priorities. I think they're going to take the student loans, reforms and defense work that the Republicans did and the groundwork that they laid there. The SALT is where I see the biggest changes and potentially also IRA tax credits. There's been pushback among some

Republican senators, even some unexpected ones like Curtis from Utah, because some of these states have been major beneficiaries of these tax credits. So I think there may be pushback to any kind of a rollback or phase out of those. But I think that it'll be a lot easier to pass a bill through the Senate than it has been through the House. Thank you, Alicia and Kate. Thank you all for listening. You can email us at pwpodcast at wsj.com.

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