Will the 'One Big, Beautiful Bill' Cost Republicans in 2026?
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Tax and budget bill on July 3rd, meeting their July 4th deadline. After an all-nighter of negotiations, arm-twisting, and who knows what else, to turn the last few votes in their favor. The vote was 218 to 214, all Democrats who voted against it.

and only two Republicans against the bill. The legislation now goes to President Trump for his signature, and the biggest part of Trump's legislative agenda will now have been accomplished. Welcome. This is Potomac Watch, and I'm Paul Gigo, editor of the editorial pages of The Wall Street Journal, and this is our daily podcast. I'm here with Kate Batchelder-Odell and

Alicia Finley to talk about the sausage making that went on in Congress. Let's listen to the comments on the floor of the House by Hakeem Jeffries, the Democratic leader, followed by Mike Johnson, the House speaker. Our Republican colleagues tried to jam this reckless extreme bill. Mr. Speaker, down the throats of the American people had the nerve to start this debate at 3.28 a.m. 3.28 a.m.

In the middle of the night. But we made clear that we were going to expose all of the things that are being done to harm the American people. Not in the dark of night, but in the light of day. This is without a doubt the most important vote of this Congress. And I think this may be the most important vote that any of us take in our entire lifetimes. And everybody better remember it, however you vote today.

My friends, the president of the United States is waiting with his pen. The American people are waiting for this relief. We've heard enough talk. It's time for action. Let's finish the job for him. Vote yes on the bill. Well, there you have it. Two Republicans who voted against Brian Fitzpatrick of Bucks County, Pennsylvania. That's north of Philadelphia. It's a swing district. He's widely considered to be a moderate member, also very pro-Ukraine.

And he might be upset about the fact that the stories this week say that President Trump has blocked new arms sales to Ukraine, new arms already in the pipeline delivered to Ukraine. And then Thomas Massey, the Kentucky malcontent who never votes for anything. So interestingly, the House passed the Senate version. So who gets credit for getting this over the finish line?

Kate? I think Mike Johnson is something of a political Houdini and deserves some credit, deserves perhaps the most credit because there were a fair number of holdouts of conservatives who didn't like some of the changes that the Senate had made to the bill. And sometime with reason, some of the changes were

not as good. But I think at a very high level, the bill extends the 2017 tax cuts and makes some of those permanent, which is good. There are some modest improvements to food stamps. It really does start to try to get an entitlement program back on a better spending trajectory, $150 billion for the military to start getting some better newer tech and equipment.

The lower I fly this helicopter, the worse things start to look. I grant that there are some bad individual provisions in them, but I do think this is an accomplishment for Republicans at a high level. What you're saying, I think, is that the reason this passed is it had to pass. They had to make the tax cuts permanent, Alicia, extend them permanently.

Otherwise, you had a $4.5 trillion tax increase at the end of the year. I think that's probably the biggest motivator here for the Republicans. They just couldn't let that happen. President Trump, of course, played a big role here in that nobody really wants to oppose him because they know it will be the wrath of Trump.

of Kahn coming down as, I think, only Thomas Massey, you know, really, and a couple of senators. But it's interesting that the House passed the Senate bill, which did some things the House bill didn't. One, made a lot of the taxes, not just the tax rates permanent, but the business side tax cuts here, particularly the 100% expensing provision, R&D, credit,

and the 20% pass-through exemption, tax exemption for small businesses. So those are all big parts of this. And that was included in the Senate bill. Some of the House members didn't like that because they said it cost too much. And then, of course, the other thing they did in the Senate was they improved the Medicaid reform provision. I think that's right. In my view, the Medicaid still doesn't go far enough.

A lot of what Republicans did on Medicaid was to make really discreet changes to some of the rules to crack down on literal waste and abuse. And one of these was the provider tax that allows states to essentially...

tax hospitals and other healthcare providers, namely hospitals, to extract more federal matching funds from the government or the federal government. And this allows them to spend less of their general funds, general tax revenues on the program.

But get more from the feds. Get more from the feds. And the hospitals end up doing better in the long run. They end up doing it. Exactly. If you look, by the way, at the latest job numbers, hospitals are basically the biggest or fastest growing employers in the country. They're doing quite well, even if they plead poverty. So.

What the House bill does is takes away or at least restricts this hold harmless exemption from the rules for these states, Obamacare expansion states. And those are the states that expanded Medicaid to able-bodied adults who earn less than 138% of the poverty line. It reduces this exemption over time from 6% of children

tax revenue on the hospitals to about 3.5 percent and it freezes it for the non-expansion states um the goal is basically slow the growth in federal spending and this yields about

$300 billion over 10 years combined with another provision that's complementary. But those created some heartburn for some of the House Republicans, Kate, right? The work requirements, I mean, it is the first work requirement for Medicaid. So yes, but I mean, to Alicia's point, I mean, I think the states have been trying to

Take more federal dollars and get the feds to pick up way more of the Medicaid spending, which is supposed to be a split between the states. So I do think it's an accomplishment that Republicans crack down on these scams states are using and that states will have to put up resources to

their own resources to cover essentially these prime age men above the poverty line that are eligible under the Affordable Care Act. So I do think that's an achievement. And the work requirement too is really aimed at that same population. We're having a lot of conversations, a lot of distortions out there about who this bill is looking at in the Medicaid provisions.

Let me take you through that in a couple of things. So the charge is people will die, that direct quote, because people will be thrown off Medicaid. Who precisely is going to be thrown off Medicaid by this bill? One group, people who don't really don't qualify.

because they've been slipping through the cracks with loose qualification restrictions, right? That's one group. Illegal migrants who get it from some states, that's another group, right? Right. You also have, you know, when you look at the budget scorekeepers' coverage numbers, the largest group is those who do not comply with the work

requirement, which is 20 hours a week of working, of volunteering, of attending school. I think those I think those numbers are those estimates are high. But because, again, you can comply, you can you can work, you can volunteer. And first, the left was saying Democrats were saying, well, everybody who gets Medicaid is already working. That was the first argument.

But the budget scorekeepers are essentially blowing that up by saying, no, they're really not working. And we know that they're not working. When you look at state Medicaid data, you see that there are a lot of particularly men in their prime working years who are not in the labor force, who are not meeting that basic part-time work requirement.

Datable men, right? But now the argument has sort of shifted to, oh, well, they can't comply with the work requirement. There's too much paperwork. They will be deserving, but they won't get the insurance. States have been administering work requirements for decades in other social safety net programs. Food stamps has a work requirement.

Cash welfare has a work requirement. Okay, so this is not some new novelty that states won't know how to deal with. And again, you are trying to prove something very basic, just a sort of part-time or engagement with the labor force. It is not a requirement to work 40 hours a week all year. So I think, again, that really does get at the bottom of the argument, which is that

The Democratic position now is that even if you don't work at all, you should be able to get free health insurance for life, even if you have no children or you are a 35-year-old man. I don't think that's where the public is. And I think Republicans should really go at that argument more directly. We're going to take a break. And when we come back, we'll talk about what this budget is going to look like.

budget and tax bill tells us about what Republicans really think about tax policy these days and how they've changed since the 2017 bill when we come back. This message comes from Viking, committed to exploring the world in comfort.

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Welcome back. I'm Paul Gigo here on Potomac Watch. And we're all talking about the big, beautiful bill, so-called, with Kate O'Dell and Alicia Finley. One of the interesting things here is that even these, I think, very basic logical reforms that you guys have been describing,

It was a very heavy lift politically, very hard to pass. Now, they had narrow majorities in the House and the Senate, but it was difficult to get this through. And I think that underscores the fact that when we politically in this country and really in all Western democracies, Alicia, when you make entitlement reforms, when you give people something,

then inevitably they grow and expand these programs. And they're very hard to pare back, even if they exceed their original purpose. Medicaid was passed in the 60s to help the poor, the people who really were without health care. Medicaid was. Medicare was for seniors. And now Medicaid is what covers all kinds of able-bodied adults. And in some states,

50% of the population, something like that, or close. In New York city. 50% of the population. But it just shows how hard it is to reform things like this. right. And even in Medicaid and Medicaid, uh, under Biden that started, or the government had provided waivers for states to cover things that weren't really related to healthcare, like affordable housing. Uh, they are also in California would cover sports classes and music lessons for troubled kids. Uh,

and all kinds of other things that they said or they claimed would help reduce health care spending, though there was no evidence that they would. And one benefit of the bill would actually require these kinds of waivers to be budget neutral, not to increase spending. So you could see savings on that front over time.

But just another example of an entitlement that has become very difficult to reform are these tax credits for green energy. They were started, the wind production tax credit was started in 1992 for an infant industry or so-called infant industry. But it has a very big infant. Yeah, exactly. Like 35 year old men who don't work.

But they've continued to be expanded and extended. The IRA actually increased the amount for both solar and wind. And whenever in the past that they've come close to expiring, Congress, Republicans and Democrats, because there are a lot of Republicans who represent very windy states, Wyoming, Iowa, even Texas, have joined together and have extended them. So there was one worry that...

Among some of the Republicans are very conservative Republicans that if you were to do a slow phase out of these that Congress in another year or two would just extend them again. So there was a dispute and eventually they arrived at a deal in which the credits would phase out or would end after.

for projects that weren't completed in a year or so. Now there's still some disagreement over how do you define start construction. Now the Trump IRS is going to have to do that to crack down. You take a spade, you put it in the ground, you turn it over, and you start a construction. That's exactly it. So it's going to be up to the Trump IRS to crack down on that kind of stuff. But at least it does provide a finite end date.

Your reference to the IRA is the Inflation Reduction Act, which is what the Biden administration passed and put in. They supercharged all of these EV credits. Ken, I want to talk at a little higher level, not so many of the details, but a little higher level about what this bill told us about where Republicans are on taxes. This isn't as good, in my view, as the 2017 bill.

which did try to simplify the tax code. One thing took out a lot of benefits for a lot of tax credits and deductions for business in particular in return cut the corporate rate.

And that's the traditional way that reform has been done since the 1980s. You lower rates and you pay for it in part by the cuts, by reductions in special preferences. This bill is loaded with special preferences and it doesn't cut rates anymore.

So do we have a supply side pro-growth Republican Party on tax policy anymore? Or is this really a kind of Republican Party mega tax policy, make America great tax policy is normal?

has moved substantially to special favors for groups, just different groups than the Democrats. Different favors, but for different groups.

There has assuredly been some intellectual atrophy here. If you think back to 2017, and the 2017 tax bill was the product of years of spade work by prior Ways and Means chairmen and others who thought about the exact principles you're talking about, lowering the rates, broadening the base.

pro-growth tax tax reform but here you know that the 2017 project was anchored around really the the lower corporate rate and that held the project together when a lot of folks started pleading for special favors uh and wanting to get particular carve outs and there were some of those in the 2017 bill but I I do worry that this product was put together more based on well what can we sell

And you have you had Trump who made that process what it was by proposing things like the deduction for car loan interest, you know, the exact kind of special carve out that mucks up the code. And then also taxes on tax breaks on overtime and tips, both of which that made it in the bill. So that puts some pressure on those to get into the bill. But you didn't see a lot of action.

a lot of simplification either in other places. You did see them expand the child tax credit only a little bit, and they at least made it permanent so that it's not a cliff that Democrats can extort later to make it bigger. But you do see more of that muddle and less, and I do think it is a testament to how the Republican Party has changed since 2017. Trump seems to view the tax code, Alicia, as an opportunity.

opportunity to buy off different interest groups. That's why the tax for tips, that's why the tax for overtime, which is aimed at unionized employees, I think. And when you get this auto interest thing, I mean, it's a single industry and it is nothing but a, it's essentially a subsidy for consumption. Your car is not going to cost as much if you get a car loan, right? You're going to, it's going to, the government's going to subsidize your debt. It's a subsidy for debt. Right.

Yeah, well, I would say it's even worse because it's specifically for U.S.-made cars. So it renders less competitive for made cars, which is, by the way, there are already 25% tariffs on foreign cars, right? There are. No, the trucks. The trucks.

No, 25% because of Trump's auto tariffs, right? Are there auto tariffs across the board on all autos? Yeah, right. All autos and all auto parts. I can't keep up. So those 25% tariffs just allow the U.S. makers to raise prices on their own U.S. cars. And so this will, in effect, offset the cost to consumers of that. And that reduces, I think, ultimately...

The growth component of this, the growth bang for the buck,

that we might get for this tax policy. We'll have to see whether or not it does have a growth effect. I think there'll be some, no question. The expensing provision is going to help with the business investment. It's not going to get, I don't think, the big boost that the 2017 tax bill gave to the economy.

And we shall see how that goes. The tragedy for me is that there's just really nobody, not a lot of people, if they're here and there in Congress, if they can raise their heads who say, you know, we can, we're willing to cut tax rates, but I don't see too many of them, Kate. Yeah.

Yeah. And you're you're highlighting a substantive point, but it's also a political risk. If you also think back to 2017, a lot of the ways Republicans answered the claims that they were blowing up the deficit and whatnot. So, well, we're going to we're going to revenues are going to hold healthy because the economy is going to grow. And that is the story of what happened. And you also had a lot of wage growth for low, low income.

income earners and other good salutary effects from the bill that people like and remember about the Trump economy. I continue to think that Trump's reelection was an ode and significant part to what people remembered about that pre-COVID economy. For sure. That came from the tax bill. And so now they are setting themselves up and saying some of the same arguments that they're going to get the same growth, but they've written a tax bill that doesn't provide that boost.

And so I think that is a problem. And if the tariff portfolio gets worse, that compounds the risk. We're going to take another break. And when we come back, we'll talk about the political impact of this giant legislation going into the 2026 midterms when we come back.

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Welcome back. I'm Paul as you go with Potomac Watch, the daily podcast of the Wall Street Journal Opinion page. And I'm here with my colleagues, Alicia Finley and Kate O'Dell. The politics are going to be related, believe it or not, to the substance, as Kate suggests. In other words, if this bill does raise the growth level of growth, help growth and help raise real incomes, then it's going to be a great deal of money.

then it will be a much easier sell politically. Never mind the focus by Democrats and the press on whatever happens in Medicaid, whatever happens on food stamps, whatever happens on student loans. The overall impact will be, okay, things are better. I'm doing better.

And if people feel like that, then that's what you get from faster growth. But if they don't, then they're going to the voters are going to say, geez, you passed all this and maybe those criticisms are right at that. That's the level at which a lot of voters will, I think, contemplate the impact of this. In that sense, it is good that this tax bill is finally done.

Because now there is tax uncertainty here for a couple years. And it will offset to some extent.

tariffs. And tariffs, as we know, are a tax. And they are having an impact on the economy. So I wonder, Alicia, what do you think the political impact of this is going to be? Who's likely to win the argument come 2026 about this bill, which will be central to the election? Well,

Well, I wonder whether it will, actually. I think the tariffs are going to continue to play a big, big role politically and economically. And it will, the tax bill will offset maybe some of the impacts, the uncertainty impacts of the tariffs. But I'm not so sure completely. They largely extend the tax policy status quo.

Yes, there's some permanence, but if you don't know what the tariff rate is going to be on a part or it really makes or the inflationary, if you're worried about the tariffs are going to set off inflation, maybe you pull back.

And I do think we've seen businesses pull back substantially. Now, I think that the research and development expensing, immediate expensing full, making that permanent, that may actually end up being the biggest growth boost in the bill because there was a lot of uncertainty from businesses because it had expired in 2022, whether that would be restored. I think there was more confidence that the expensing for the equipment would be.

But again, going back to the tariffs, Trump just the other day threatened to slap 30, 35 percent tariffs on Japan. You don't know what the tariff rate is going to be. You're going to still put some investment on pause. Well, and just to elaborate on that point, the president in the last couple of days has announced a trade deal, which he claims is a great success with Vietnam.

Vietnam, of course, has been a place which exports to the United States boomed after Trump's tariffs in 2018. The victory here, I guess, is that Vietnam will have zero tariffs on American exports. Terrific. However, Americans will pay 20% tariffs on Vietnamese goods still. Vietnam will have a 20% tariff on Vietnamese goods and a 40% tariff on so-called trans-shipped goods, essentially a

Chinese owner, but they moved the production in 2018 or later to Vietnam. So that's going to increase costs on those goods that we import from Vietnam. That'll have a negative impact on cost of living for individuals. I don't know if they'll influence the overall inflation rate, probably not, but will it affect individuals who are buying things made in Vietnam? Yes, yes, they will. So, but Kate, let's, you know, what about the political impact? Do you have, we

I think we know what Democrats are going to say. But Republicans, I have to say, my own view of how they've defended this bill has been –

they're somewhere between awful and pathetic. They don't seem to know what's in their own bill or how to defend it. The only thing they'll say is, well, do you want a tax increase or not? Okay, good. That's one line. But how about explaining what is actually in the bill where people start to shake their head and say, I didn't know that. Or that's interesting. They just don't do that. Well, you heard Hakeem Jeffries clearly thinks he's found the issue. He's going to ride into 2026, which is just a Medicaid bill.

apocalypse and that the Republicans are heartless and they threw millions of people off Medicaid. And unfortunately, he's been given some ammunition by Republicans who have even ones who have voted for the bill of basically undermining it or saying they hope the provider cut taxes don't take effect or, you know, basically unable to mount an argument about what they're doing. I don't think Republicans can avoid that going into the midterms. I do think they have

um, an advantage here over 2017 when the, uh,

coverage numbers really scuttled the repeal of the Affordable Care Act. I think the headlines are not as not getting through in the same sense, because part of the public has started to tune out some of these predictions and that don't think that they're going to come true. So that gives Republicans an opening to go out there and explain what they have done, explain that they think it's fiscally and socially appropriate for

men to work in exchange for Medicaid. Go out and explain, look, Medicaid has been on a rocket ship trajectory since President Biden in 2020 over COVID. We're trying to get back to what it was like in 2019 when it was very generous and get it back on a

2%, 3% growing every year, which is closer to the economy. It can't just continue to grow at this unsustainable rate. And again, I've been using this statistic, but if the share of the population on Medicaid is double the poverty rate, I think that says something about the health of the country, that Republicans should be out there making that argument and

that Medicaid should be preserved for low-income pregnant women, the blind, children with complex medical needs. The distortion claims out there that these are the people Republicans are going after, they're going unanswered right now. And so I think Republicans are really going to have to develop some muscle memory in talking about health care again.

Also, last hope is that they start to work on the other side of the ledger and explain what kind of health insurance they want people on. Medicaid doctors don't take it. It reimburses at low rates. They need to be out there talking about expanding private alternatives, making health insurance more portable so you don't have to move it when you leave your jobs. I know this is a moonshot, but they do have to get back to talking about health care or Democrats are just going to continue to pound them on the campaign trail.

I wish it were only a moonshot. I think it's more like a Saturn shot that they will have any time, maybe an outer galactic shot. The Republicans, the best you can hope for is they can actually figure out, they can actually find talking points to defend the Medicare and food stamp things in this bill. Asking them to come up with a health care policy?

Wow. If that happens again in my lifetime, I will be a fortunate man. I want to thank Alicia and I want to thank Kate. I want to thank all of you for listening. We're going to take off July 4th as good patriotic Americans. I wish you all the best. Flag waving forth and we'll see you after the weekend. Thanks for listening.