The Senate Is Improving the GOP's 'Big Beautiful Bill'
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Senate Republicans make progress drawing up their version of the one big, beautiful bill. What's in it? How does it compare to the legislation that passed the House and his final victory now coming into sight for the GOP's budget reconciliation effort? Welcome. I'm Kyle Peterson with The Wall Street Journal. We are joined today by my colleagues, editorial board members, Kate Batchelder-Odell and Mene Ukebarua.

The debate over the Republican tax and budget bill has turned to the Senate, where the committees are putting out their versions of the policy details, including the tax component released on Monday by the Senate Finance Committee.

Here's Donald Trump this morning rattling the political saber at Republican senators who might be inclined to haggle over some of these details or even vote no on the final package. I mean, anybody that votes against it, they voted to give a 59, 68 percent tax increase and many other benefits. There would be no money for the border. You know, we have billions of dollars allocated to immigration, the border, keeping criminals out, getting criminals out to it.

If that doesn't pass, you'll get a 68% tax increase. And I would say this, any senator that votes against it

and that includes Democrats, I think they'll be finished in politics. - Kate, what's your read of how the Senate package looks as it's coming together? The key motivator for Republicans is avoiding the expiration of the 2017 tax cuts, about $4.5 trillion in tax increases coming at the end of this year, but also other priorities in there, including extra money for the Pentagon, which certainly looks justified looking around it. What is happening in the world these days?

I think it's quite clear that the Senate version and the House version of this bill are far preferable to a $4.5 trillion tax increase that does arrive next year if Republicans do nothing. I don't love every individual provision of either bill, but I think the Senate draft out this week does make some improvements to some particular provisions. One example I would give

is the business provisions on expensing. And those are sort of wonky, but the important part is that the House version made those temporary and expire, and the Senate was able to make them permanent. And that matters for two reasons. The first is that these are core provisions in the bill that would increase economic growth, which is essential for raising living standards for people.

And this bill doesn't do as much of that as the 2017 bill did. So the Senate made the bill more pro-growth, which I think is important. The Senate, I think, also improved the Medicaid plank of the bill. They did more to go after some scams that states are using to finance their

Medicaid programs. They did more to go after improper payments than the House did that states are making in Medicaid. I think that's an improvement. And overall, I think the Senate also tried to make more of its tax changes permanent.

And that matters because investment certainty is essential and also because that's the core economic reason. But what I was getting at earlier is the politics here of permanence also matter because by making some of these provisions permanent, what Republicans are doing is basically preventing Chuck Schumer and the Democrats from coming back to the table in three years and extracting a high price to extend some of these tax cuts.

So I think overall, the picture is that the product is improving. And I think the direction of travel also is toward passage. I think you've had a lot of loud, squeaky voices in the Senate about this or that priority. I think you're going to start to see the conference start coalescing around this product because the alternative is failure. So I do think this is an improvement and suggests that the Trump administration is going to get the bill through.

I would second that point about permanence, Manay. I mean, first of all, businesses don't make decisions on two or four year time horizons often. They're looking further out than that. And if there's a provision that they think they're going to rely on, but it might or might not be extended, that's a problem. Business certainty is a huge deal, I think, for economic growth.

And two, to the point about the expiration dates, often you've had these kinds of fights arising, these fiscal cliffs they're sometimes called, because when the Senate is working in this budget reconciliation framework, there are some limitations. And so often we're

One of the things that happens is the Senate decides to make some of these provisions temporary for five years or for 10 years. But then the problem is in five years or 10 years, you have another must pass bill. You reopen the negotiation and often it's hard to know what the results of that are if you throw the policy back

as a jump ball into the Senate, depending on the makeup of the Senate in any given year. Yeah. I mean, I agree that permanence is absolutely key. I think that if you listen to the architects of the 2017 tax reform, folks like Kevin Brady, who was the chairman of the house ways and means committee at the time, and Paul Ryan, who was his predecessor on that committee, who then was leading house Republicans, they always wanted those business tax cut provisions that Kate mentioned to be made permanent. But again,

in order to get the math to work and get that bill passed through reconciliation, they had to put an expiration date on it. And so they focused on making the corporate rate cut permanent. That was their number one priority. But the hope was that future Republican majorities and future Republican presidents would be able to revisit some of these provisions and get those locked in. And that's exactly what Senate Republicans are trying to do right now. There is a little bit of a fight with the administration about this because President Trump apparently has said

sought to make the business provisions not permanent in part because he wants to give businesses an incentive to make their investments sooner rather than later. So the thought is if you let them expire, then a whole bunch of people who are building plants and equipment are going to say, let's go ahead and spend in 2026 or 2027 so we can take the full advantage of that tax benefit rather than

than wait. But I think there are a lot of Senate Republicans who know better and know that growth in the economy, as you mentioned, is going to depend on having these long-term incentives for businesses, folks like Steve Daines, who have made priorities out of this in particular, and particularly because there's so much uncertainty in the rest of the economy. And with tariffs coming out of the administration, businesses don't feel like they're able to invest

knowing exactly what the economic landscape is going to look like a few years down the road. If you can do things like make sure that they know they're going to have the possibility of expensing the full cost of their capital investments indefinitely, that's going to be something that's going to spur a lot of growth. And so I think it makes sense that Republicans are prioritizing that now. Hang tight. We'll be right back in a moment. The spirit of innovation is deeply ingrained in America, and Google is helping Americans innovate in ways both big and small.

Welcome back.

Kate, one of the big differences you mentioned between the Senate and the House versions is this issue of Medicaid provider taxes. Explain what the story there is and why these differences between these two versions of the bill matter, which one gets to final passage and possibly the president's signature. So behind this really wonky issue is something that I think is important about

the direction of the entitlement state and the ability to keep Medicaid solvent and working for the vulnerable poor people who the program exists to help. So I do think that this is a substantive provision that is a little bit hard to understand. So these provider taxes that Congress are looking at

States basically expanded their Medicaid programs under the Affordable Care Act to cover certain able-bodied adults up to above the poverty line. And the Affordable Care Act, Obamacare, basically gave them a bunch of money to do that. So if they spend $1, they can get up to $9 for every dollar they spend on this little pool of Medicaid enrollees. And so that's a pretty sweet deal, states thought.

But what states have done, one thing that they've done is basically set up these provider taxes. And it's a scam, if you don't mind me putting it so bluntly. But they levy taxes on health care providers and then essentially count that money as Medicaid spending so that they can draw down more federal dollars from the federal government and

maximize the amount of money they get from Washington. And so Congress has looked askance at that for some time, even on a bipartisan basis. So the Senate bill would start to ratchet down some of those provider taxes. What the House bill did was basically

freeze it and say, okay, if you have this money laundering tactic now, you can keep it, but no new money laundering, which is problematic because it rewards the states that have done it more aggressively. So I think the Senate provision is much an improvement. And also 10 states, Kyle, have not taken this bribe that the Affordable Care Act gave to expand their Medicaid programs. They have assumed that

Though it looks like a lot of free money now, eventually they'll be on the hook for a big share of it and that it's a sleeper risk for their state budgets. And so why this Senate provision matters is because it basically tells those 10 states that they made a good call in not taking this free money from Washington because states that did are going to have to start putting up more of their own resources now.

to pay for those and not using these gimmicks that they've been relying on for so long. One of the other differences, Manay, is some of the deductions the Senate is lowering. So the no tax on tips that President Trump promised on the 2024 campaign trail, the Senate has a limit on that, a deduction limit of $25,000.

$12,500 for no taxes on overtime. Those, to my mind, are improvements because those are, for all intents and purposes, giveaways, carve-outs that you're adding to the tax code that I worry are going to distort economic incentives as businesses and employees try to figure out how to convert more of their income into tipped income and to overtime income. And so any sort of cap that

the bill can put on those would potentially limit the damage of that effect. And then notably, the Senate bill keeps a $10,000 limit on the state and local tax deduction, which is already causing some sparks to fly from the SALT caucus in the House.

Here is New York's Congressman Mike Lawler. He says, I've been clear since day one, sufficiently lifting the SALT cap to deliver tax fairness to New Yorkers has been my priority in Congress. He suggested that a bill with a $10,000 SALT cap, which is the

current cap would be dead on arrival in the House. He wants it more like $40,000. That was the figure that passed the House. So, Manet, maybe this is going to be a point of further negotiation between Republicans and between the House and the Senate. Yeah, well, on the no taxes on tips and

over time. Those are, of course, promises that President Trump made repeatedly on the campaign trail, looking to shore up his support among middle and working class voters in particular. And he repeated them enough times that I think everyone understood when the time came to write a big tax bill and to extend the 2017 cuts, they were going to have to be included in some form. I'm sure that Republican legislators were

putting their faces in their hands, thinking about how are we going to get this in, in what form we're going to do it. And the idea, I think, has always been that they have to include something that could meet the basic definition of those promises, but exactly how far they have to go was always up for grabs.

And so the Senate from the very beginning knew that they were going to whittle down those provisions from how they were first drafted in the House version of the bill. And that's what they've done, included some caps, as you mentioned, on those provisions to reduce the cost and also decrease the distortion because you don't want employers changing the way that they structure their employees' pay provisionally.

particularly giving them more unnecessary overtime hours or converting what would have been salary income into tipped income, because that's going to distort the entire incentive structure for these employers. And so it's good that the Senate managed to whittle these down. And my sense is that the administration understood that this would happen. They were being read in during this process and knew that they were going to be decreased a little bit, and they're fine with that. So I think

The ultimate legislation is probably going to look closer to the Senate version on that issue than to the House version. When it comes to SALT, basically, it was sending a message from the Senate Finance Committee to the House to put that number on the SALT deduction at 10,000.

They know that that's essentially an opening position because of the strong position that the House members have staked out on the issue, saying they're not going to vote for any bill that doesn't increase SALT. And so I think the Senate knows that there are going to be negotiations. They're probably going to increase that number. Nobody knows exactly where they'll land. They're going to have to fight it out. But I do think that it is, again, an improvement that the Senate

is staking out this initial position of saying, we don't believe in state and local tax deduction. We don't want to increase it because we think it's a subsidy to blue states to increase their taxes. And it would take a lot of revenue away from provisions that in other parts of the bill that would be much more pro-growth and they're going to have to fight it out. So we'll see who comes out on top in the end. These are both big, beautiful bills, the emphasis on big. So there are all sorts of different policy details involved.

that we could discuss here. Just to pick one, the Senate bill would increase the threshold for payment platforms like Venmo to have to report user payments of 20,000 would be the new threshold in the Senate bill. Kate, what else should listeners be looking at? What are the key details that you would point to here? One area is, of course,

Defense spending, both the House and Senate bill include a pretty important cash infusion to the defense budget that tries to go after some of our defense vulnerabilities and tries to invest a significant amount of money in unmanned technology and expanding our munition lines and maybe getting after some of our really protracted problems building ships for the U.S. Navy.

That plank's pretty important. And it's a place where the House and Senate are basically on the same page. Another I'd mention is the food stamps reforms that are in the bill that look poised to survive, including strengthening work requirements in that program. And again, those are modest work requirements that if you get benefits, you work 20 hours a week, you can volunteer. It's only for the able-bodied. There are lots of exceptions for those who are pregnant or receiving substance abuse treatment. I mean, it really is

I think represents some of the Republican Party's best traditions on welfare reform from the 1990s that work as a condition of the social contract is important and it's essential for upward mobility. Those two right there, they're big achievements that I think do help make the bill look a little bit better when we start getting into some of those temporary tax carve-outs and

that are weighing this thing down. One other place, just quickly, like you said, there are so many places we could get into, but the House bill had some expansion of health savings accounts that didn't make it into the Senate bill. I think they didn't make it into the Senate bill because, you know, like Renee was talking about, they want to make some of the other things permanent and that you got to move some money around on paper. But I think health savings accounts are vehicles that people like. You can, you know, shovel money into them to try to pay for some of your own

health expenses, but they can only be shared with certain healthcare plans. You can only spend them on certain things. House provisions try to expand some of that, involve things like direct primary care, where you pay a primary care doctor that doesn't take insurance, but they help you with your basic needs and you use insurance if you go to a specialist. That's an example of where letting people control more of their own dollars on their health spending, I think would be popular. I mentioned this because

Republicans are taking a lot of flack right now for the changes they're making on Medicaid. And a lot of that is in bad faith. I mean, they're just slowing the growth of Medicaid. We're not talking about cutting the Medicaid program. But I think Republicans will have to start making some counter arguments on, hey, we want to move Americans, more Americans onto better and health insurance. Medicaid is not very good. It's hard to see a good doctor with Medicaid. So we are also working on the other side of the ledger to improve options that people have.

So that's one reason why, even though the health savings account provisions are minor, I think they are worth including in the final bill. Hang tight. We'll be right back after one more break. The spirit of innovation is deeply ingrained in America, and Google is helping Americans innovate in ways both big and small.

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From the opinion pages of The Wall Street Journal, this is Potomac Watch. Welcome back. One final difference that is stirring up some controversy. The House bill devotes about $62 billion to the border, and the Senate proposal is $39 billion. One guy who is standing up for that difference is Rand Paul, the chairman of the Homeland Security Committee. Let's listen a bit to him. They want $46 billion for the wall.

So I googled and asked Grok or somebody, how much does the wall currently cost? It costs $6.5 million per mile. There's about 1,000 miles left you could make a wall on. That's $6.5 billion. And they want $46 billion.

So they really want $46 million per mile that's left of the fence. And I said this in my committee hearing, and some guy goes, oh, we're going to fence Canada next. And I actually don't think we need a fence everywhere. The fence is in certain places I think we could use. But I'm just – I don't – I think we should not –

discontinue being conservatives once we hear about a wall or we hear about the border. Oh, whatever. Oh, it's for the border, whatever. No, we still should be conservative. I mean, none of you would pay $46 billion for a wall if you could get it for $6 billion. We ask questions.

Mene, part of the reason I think that dispute is interesting is it shows the level of details that senators can get into if they want to. The border numbers, the number of migrants crossing the southern border have plummeted since President Trump took office, took over from President Biden.

And when you have a majority in the House or the Senate that is as narrow as John Thune and Mike Johnson have, any one member can be a majority maker and say, if you want my vote, this is what it's going to take. Yeah, well, I really feel for Rand Paul. He seems exasperated in that clip and rightly so, I think having to

negotiates with an administration, which is very, very gung-ho about getting as big a spending number as they possibly can for the border because they want to show American people how much they're devoting to that issue. When he, as he mentioned, is actually looking at the numbers, looking at the math, deciding what would actually be required to pay for the provisions that the administration says it wants,

realizing that it ought to come out to much less. And he's completely right in saying that it is a principle of the Republican Party to be efficient, even for important goals like border security, defense. You want to increase funding where it's needed, but you want to do so in the most efficient possible way. And when it comes to the board provisions, that's clearly not what was done in the House version of the bill that was going to devote

almost $47 billion to a border wall, which a lot of which has already been constructed, which has a requirement for systems and things like that, that shouldn't come out to nearly the cost that the administration projected it to come out to. So it's incredible to think on the one hand, you have the Senate Finance Committee, which

agonizing, trying to crunch these numbers, trying to get the math to work for key provisions like extending the individual cuts, extending the business cuts. And then in other parts of the bill, the same party wants to essentially spend recklessly without even really vetting what the money is going to and why it's necessary.

And so Rand Paul definitely is on the wrong side of a lot of issues, particularly when it comes to defense and can often be too stubborn fiscally. But it is really, really beneficial that the Republican Party at this moment has voices like that on certain topics who are willing to say,

Before I'm willing to cast my vote for this, we need a deeper audit of how this money is actually going to be spent and make sure that we're not wasting just because we have a majority and have the power to get this thing out the door. Okay, we'll give you the last word, but the importance of the changes that the Senate is making to improve the pro-growth elements of this bill to encourage economic expansion, I think that's only been heightened as you've watched some confusing data coming out of the economy, President Trump's

on-again, off-again tariffs. That sort of concern, I think, is another piece of what is encouraging Republicans to find common ground between themselves in the House and in the Senate, and then between the House and the Senate. And so we'll give you a final word here on your optimism, I guess, about Republicans getting this done in the end. There's no question, Kyle, that

The growth provisions in the Senate bills really are consequential. And I've laid out this theory before, but in 2017, the big growth driver of that bill was the corporate tax cut to 21 percent down from 39 percent. And what voters liked about the Trump economy in 2019 before the pandemic was the rapid growth and the wage growth that extended even to low wage earners.

I think that contributed to the president's reelection. It is something that voters remember about him, especially compared with the rapid inflation from the Biden administration. So you want this bill to do as much to boost economic growth as possible because that's what voters care about despite all this time we spend talking about

tax deductions for auto loans and all the rest of it. I think that the Republican fortunes in the midterms really do depend on Americans' perceptions of the economy. So that's why you want the bill to be pro-growth. But I do think there's reason to think this is going to pass. Like I said, we've had

several weeks of various unhappy senators about different provisions. For instance, you know, Josh Hawley has been complaining about the House Medicaid provisions. But I think the president laid out some pretty tough words for anybody considering voting against this bill. And I think that's an example of someone who's tied his brand to

Trump, and it would be very, very hard for him to vote against the president's signature priorities bill. So I think what you're going to see here is hopefully some continued discrete improvements toward those larger goals I was describing in growth. But I think senators understand the stakes here and that the bill does look like it's going to move forward. Thank you, Kate and Manay. Thank you all for listening. You can email us at pwpodcast at wsj.com.

If you like the show, please hit that subscribe button. And we'll be back tomorrow with another edition of Potomac Watch. The spirit of innovation is deeply ingrained in America. And Google is helping Americans innovate in ways both big and small. The Department of Defense is working with Google to help secure America's digital defense systems. From establishing cloud-based zero-trust solutions to deploying the latest AI technology. This is a new era of American innovation.

Find out more at g.co slash American Innovation.