Trump’s Tax & Spending Law – The Good, the Bad, and the Ugly

President Trump signed on July 4th his tax and spending megabill. This independent, nonpartisan analysis explains The Good, The Bad, and The Ugly in a 14-minute read.

This week’s Trillions is an independent analysis of President Trump’s megabill, signed into law on July 4, 2025. We’ll be back next week with our usual 12-minute weekly summary of major developments in taxes, appropriations, tariffs, the economy, the federal government, the courts, and the fight for democracy and the rule of law.

Background on the megabill: House and Senate Republicans passed President Trump’s tax and spending megabill (H.R. 1, the “One Big Beautiful Bill Act” or “OBBBA”) using the fast-track “budget reconciliation” procedure. Budget reconciliation permits “budgetary” provisions to be passed under strict time limits that prevent a Senate filibuster and permit passage with 51 votes.

The House initially passed OBBBA 215-214 on May 22, 2025 following committee markups by 11 House committees. (Link here to the House committee reports [Part I and Part II] covering each of the 11 titles of the initial House bill.)

After initial House passage, Senate Republicans made substantial changes to the House-passed bill in language released by Senate committee chairmen. The changes were designed to bring the bill into compliance with the Senate’s Byrd Rule, as well as to secure the support of 50 GOP Senators for passage.

Notably, Senate Republicans did not hold committee markups or hearings on the legislation—a flagrant violation of Senate precedents—nor did committees produce report language explaining their legislative text.

The language received from 10 Senate committee chairs was then combined into a single Senate version of OBBBA by Budget Chairman Lindsey Graham. The full Senate then proceeded to debate its version of the bill. During Senate consideration, the Senate defeated a raft of Democratic amendments summarized HERE.

At the conclusion of debate, the Senate on July 1, 2025 passed its version of OBBBA 51-50 (with the Vice President breaking the tie). The vote was party-line, with the exception of GOP “no” votes by Senator Rand Paul of Kentucky (opposed to the debt limit increase in the bill), and Senators Susan Collins of Maine and Thom Tillis of N. Carolina (both opposed to the deep Medicaid cuts).

The House then passed the Senate version of OBBBA on July 3, 2025, by a vote of 218-214. It is highly unusual, possibly unprecedented on a bill of this magnitude, for the House and Senate not to convene a conference to resolve differences between the House and Senate versions.

Characteristic of President Trump’s strategy to shore up his base by dividing Americans from one another, he complained that Democrats voted against the bill because “they hate Trump – but I hate them too.”

OBBBA was signed into law on Friday July 4, 2025, becoming Public Law 119-21.

Link to text of OBBBA as enacted (known as the “enrolled bill.”
Link to the legislative history of OBBBA.
Link to Congressional Research Service section-by-section summary of OBBBA.
CBO: cost estimate of OBBBA – increasing deficits $3.4 trillion (4 trillion including interest on the additional debt).
CBO: distributional effects by income of OBBBA as passed by the House.
Link to the JCT estimate of the revenue provisions in OBBBA.
Link to the Yale Budget Lab analysis of OBBBA.
Link to the Tax Policy Center distributional analysis and summary of OBBBA.
Penn Wharton budget, economic, and distributional effects of OBBBA.
New York Times summary of tax cuts, spending increases, and spending cuts.
JD Supra: Tax Law Changes in OBBBA: Key Takeaways
KFF’s summary of healthcare provisions in OBBBA.

HIGHLIGHTS OF TRUMP’S OBBBA: The Good, The Bad, and the Ugly

Overall, the negative impacts of OBBBA’s provisions far outweigh the positive, as detailed below.

OBBBA: The Good

• OBBBA permanently extends most of Trump’s 2017 tax cuts (lower marginal rates and increased standard deduction) which had been scheduled to expire at the end of 2025.
  

  • These extensions prevent tax increases on lower and middle income earners which is a positive move, but the costs should have been fully offset as required by the Statutory Pay-As-You-Go Act of 2010.
    

  • There are numerous reasonable ways in which the costs of the lower- and middle-income tax extensions could have been fully offset, for example: increasing the capacity of the Inspectors General and the Government Accountability Office to identify and eliminate waste, fraud and abuse (ironically, the Administration is currently making deep cuts to this capacity); eliminating special interest tax loopholes (like carried interest); restoring the 39.6% tax bracket for the wealthiest taxpayers; adding IRS agents to strengthen tax collection—recent estimates are that $700 billion in tax revenues are owed but not collected—a shortfall that is escalating as Treasury fires tens of thousands of IRS employees; and using spending caps to slow the growth of federal spending without cutting safety net programs that serve the most vulnerable Americans.
    

• OBBBA increases the statutory limit on the public debt by $5 trillion—avoiding another flirtation with fiscal disaster.
  

  • Link HERE to learn about the economic perils of Treasury defaulting on federal obligations due to the debt ceiling.
    

• OBBBA temporarily raises the state-and-local-tax (SALT) deduction cap to $40,000 with a 1% increase every year through 2029, after which it reverts back to $10,000. This is an accommodation for taxpayers located in states with high housing costs, although 40k may be excessive at a time of spiraling deficits.
  

• OBBBA creates a $50 billion fund for rural hospitals.
  

  • This is a reasonable measure to offset some of the damage—discussed below—of the staggering $1 trillion in Medicaid cuts.
    

• OBBBA permanently extends the child tax credit and raises it to $2,200 from $2,000 in 2026, indexed for inflation.
  

• OBBBA provides $10.5 billion in additional Pell Grant funding to address a financing shortfall, and would no longer award grants to students from higher-income families, as well as those receiving full-ride grants and scholarships, while expanding eligibility for students seeking short-term training certificates.
  

  • However, as discussed below, it also places some unjustifiable limits on Pell Grant eligibility for part-time students.
    

• Other small, but favorable provisions include: expanding the low-income housing tax credit; increasing the child and dependent care tax credit; increasing the credit for semiconductor (computer chip) manufacturing; making permanent the exclusion for employer payment of student loans; permanently allowing a charitable deduction up to $1,000 ($2,000 for married couples) for those who do not itemize; permanently extending the new markets tax credit to increase investment in low-income communities; permitting capital gains on farmland sales to be paid in installments; exempting certain orphan drugs from the Medicare drug negotiation program to incentivize their development; allowing high-deductible health plans to provide telehealth services without cost sharing; limiting deductions for gambling losses; and increasing funding for the U.S. Coast Guard, air traffic control, claims related to radiation exposure, and the U.S. Secret Service.
  

OBBBA: The Bad

• OBBBA cuts federal Medicaid payments to states by more than $1 trillion over 10 years (although many of the cuts are not effective until after the 2026 midterms). Medicaid cuts include:
  

  • $317 billion in cuts by requiring frequent paperwork verifying that childless adults and parents of children older than 13 are working, volunteering or attending school 80 hours per month, unless they qualify for an exemption (such as disability). State experiments with work requirements have not shown increased employment but have resulted in more uninsured Americans.
    

  • $183 billion in cuts by tightening limits on state Medicaid provider taxes, a financial maneuver devised by states and providers to secure higher federal matching payments. Beginning in FY 2028, the maximum rate that states may charge hospitals gradually declines from 6% to 3.5% in the 40 states that expanded Medicaid under the 2010 Affordable Care Act, and in the 10 states that did not expand Medicaid, provider taxes would be frozen.
    

  • $149 billion in cuts by limiting Medicaid “state-directed payments” to hospitals and nursing facilities. Link HERE for background.
    

  • $364 billion in other Medicaid cuts by: limiting demonstration projects and retroactive coverage; cutting payments to states with errors; requiring Medicaid copayments up to $35; ending new expansion funding; eliminating minimum staffing ratios at nursing homes; reducing emergency payments for immigrants; preventing managed care taxes from boosting federal payments; requiring more frequent eligibility checks; and canceling a rule making it easier for low-income Medicare beneficiaries to receive Medicaid assistance with premiums.

    • While some of these Medicaid reforms may be sensible components of a comprehensive deficit reduction package, they are not justifiable in a package of unnecessary tax cuts that disproportionately benefit the wealthy.
      

• OBBBA includes numerous business and international tax extensions and reforms costing nearly $1 trillion in lost revenues over 10 years. While some of these tax changes may be favorable incentives for business investment, these tax cuts should have been fully offset as required by the Statutory Pay-As-You-Go Act of 2010. Instead, they contribute to boosting the overall cost of OBBBA to $4 trillion in new public debt. The business and international tax changes, and their costs, are summarized by the Joint Committee on Taxation HERE.
  

• OBBBA includes a new $6,000 per-person tax deduction for seniors (which phases down for income surpassing $75,000 per person) as a way of offsetting taxation of Social Security benefits.
  

  • The Administration appears to be unaware that taxation of Social Security benefits was put into place in order to extend the solvency of the Social Security and Medicare Hospital Insurance Trust Funds. With the Trust Funds projected to go bankrupt in 2033, the last thing we ought to be doing is cutting revenues to the Trust Funds.
    

• OBBBA increases and permanently extends the estate and lifetime gift tax exemption—an unaffordable giveaway to the wealthiest individuals at a time of high deficits.
  

• OBBBA boosts defense spending $150 billion—an imprudent evasion of the annual appropriations process, likely to lead to more waste, fraud, and abuse.
  

  • The bulk of the funds are for munitions, the so-called “Golden Dome” integrated air and missile defense project, military readiness, low-cost weapons, nuclear forces, and Indo-Pacific Command.
    

• OBBBA permanently extends the increased individual AMT exemption amounts at a cost of $1.4 trillion—too expensive at a time of large deficits. The AMT provision should be more narrowly targeted, fully paid for, and focused on protecting middle income earners.
  

• OBBBA includes new deductions for tips up to $25,000 per person and overtime pay up to $12,500 per person (both temporarily available only during Trump’s term), and auto-loan interest up to $10,000 on new cars assembled in the U.S. None of these make sense at a time of unsustainable deficits.
  

• OBBBA creates new tax-advantaged “Trump accounts” for children, with a government contribution of $1,000 per child born from 2024 to 2028 (available only during Trump’s term) at a cost of $15 billion—an unaffordable PR stunt for a country deeply in debt.
  

• OBBBA increases taxes on private college and university endowments at 8% for the wealthiest schools, then at tiers of 4% and 1.4% for smaller endowments (with schools under 3,000 students exempt).
  

• OBBBA includes numerous special interest tax breaks difficult to justify at a time of unsustainable budget deficits: tax credits for contributions to private school scholarships; increasing the small business stock exemption; replacing the highly successful IRS direct file tax program with a “public-private partnership” benefitting tax preparation firms; more favorable rules for companies owned by real estate investment trusts; increasing to $50,000 the deduction for Alaskan whaling captains; a new tax exemption for fishers from villages in western Alaska; and terminating a $200 tax on silencers and short-barrel rifle purchases at a cost of $1.7 billion in revenues.
  

• OBBBA cuts spending—without any Appropriations Committee review—for: the National Oceanic and Atmospheric Administration (at the very time when better weather forecasting is vital), Securities and Exchange Commission technology, and the Consumer Financial Protection Bureau.
  

• OBBBA claims to raise $85 billion from auctioning parts of the electromagnetic spectrum, one of the most frequent and flagrant budget gimmicks of the last 40 years.
  

OBBBA: The Ugly

• OBBBA will explode deficits by $3.4 trillion over 10 years—$4 trillion when interest payments on the additional debt are included—forcing future generations of Americans into a dangerous debt spiral radically shifting tax revenues from public services into skyrocketing interest payments.
  

  • Notably, CBO’s alternative budget estimate showing reduced deficits under OBBBA (requested by Senate Budget Chair Lindsey Graham) uses a “current policy baseline” which is phony because it assumes that extensions of the 2017 tax cuts have no cost. This maneuver by Graham allowed the bill to evade Senate prohibitions on legislation increasing deficits over the long-term.
    

• OBBBA is highly regressive—hurting the poorest Americans and enriching the wealthiest. The Yale Budget Lab estimates the bottom quintile would see household resources decline by nearly 3 percent, while the top 1 percent of Americans would receive a tax cut averaging $30,000.
  

  • The Administration’s pending tariffs would make the Trump agenda even more regressive due to the likelihood that tariff taxes will be passed along to consumers for essential household goods, appliances, electronics, and cars.
    

• OBBBA (and other concurrent policies) will increase by 16 million the number of people without health insurance. This enormous increase in uninsured would result from $1 trillion in Medicaid cuts (explained above), $200 billion in other healthcare cuts, and failure to extend the expanded ACA premium tax credit, together with implementation of a pending rule. Link HERE for more details.
  

• Increased health premiums: In addition to 16 million people losing health coverage, 22 million may see a sharp increase in health insurance premiums in 2026 due to the failure of OBBBA to extend enhanced ACA premium tax credits expiring the end of this year.
  

• OBBBA will trigger a half trillion dollars in automatic cuts to MEDICARE over the next 10 years (Medicare is the national health insurance program serving all Americans 65 and older and disabled workers).
  

  • Explanation: The Statutory-Pay-As-You-Go Act of 2010 (S-PAYGO) requires the White House Office of Management and Budget (OMB) to automatically cut programs to offset the new law’s deficits. Medicare, which costs nearly a trillion dollars per year, would be cut by 4% each of the next 10 years- amounting to a half trillion in cuts according to CBO.
    

    • (These Medicare cuts are in addition to annual Medicare cuts of 2% per year currently required by the Budget Control Act of 2011.)
      

  • In the past, Congress has acted to neuter these automatic cuts, but we now have an OMB Director, Russell Vought, who has repeatedly favored radical spending cuts; he may see automatic Medicare cuts as desirable. Moreover, consider that the White House on March 11, 2025 said, “The Trump Administration will not cut Social Security, Medicare, or Medicaid benefits”—and yet, we now have a newly-signed law that cuts Medicaid by $1 trillion, the deepest cuts in history.
    

  • For more background on automatic cuts to Medicare, see my book, Trillions: A Primer on Federal Spending, Taxes, the U.S. Debt Ceiling, and Fiscal Law.
    

• OBBBA cuts $186 billion from federal food payments by: expanding work requirements to qualify for the Supplemental Nutrition Assistance Program (“SNAP” formerly food stamps); requiring certain states to pay a portion of SNAP costs (5% to 15%) beginning in FY 2028; increasing to 75% the share states pay to administer the program; and repealing the national obesity prevention program.
  Similar to the Medicaid cuts, some of the SNAP cuts are backloaded, i.e., not going into effect until after the 2026 midterm elections.
  

  • Millions of U.S. families—including children, seniors, and nonelderly adults with disabilities—would lose some or all of their SNAP benefits. On average those families would lose $146 per month in food benefits.
    

  • While the Agriculture title of OBBBA cuts federal funding for SNAP by 20%, the new law sharply increases spending for farm programs by $66 billion.
    

• OBBBA significantly reduces federal funding of student financial aid with cuts of $314 billion raising costs for millions of people and raising the specter of a “mass wave of defaults.” OBBBA phases out several popular income-driven repayment plans which advocacy organizations say would raise monthly payments. OBBBA eliminates Grad PLUS loans reducing student access to medical, law, and other professional schools (exacerbating the physician shortage), imposes a lifetime cap on loans for graduate and professional programs, limits Parent PLUS Loans, places a lifetime limit on education-related borrowing, and delays for 10 years regulations to help student borrowers who have been defrauded. Read more HERE about the financial aid reductions.
  

  • OBBBA also adds conditions to Pell Grants which would put the grants out of reach for some part-time working students.
    

  • The Department of Education is separately moving forward with a rulemaking process to limit student loan forgiveness eligibility under the Public Service Loan Forgiveness Program.
    

• OBBBA spends $150 billion to advance Trump’s arrest, detention, and deportation of millions of immigrants. These deportations are not based on a law enforcement strategy. Nine out of 10 ICE arrests have committed no violent crimes. Like the populist Know-Nothing party of the 1850s, today’s anti-immigrant populism is based on intolerance, racism, and fear-mongering. We’ve seen it before in U.S. history with the pendulum swinging between periods of open immigration stimulating economic growth, and reactionary moves to exclude Irish, Chinese, Italian, Jewish, and now African and Latino immigrants.
  

  • This huge spending increase for deportation includes $30 billion for Immigration and Customs Enforcement, $45 billion for detention of migrants, $13 billion in reimbursements to states and cities for “immigration enforcement,” $46 billion for Customs and Border Protection to continue work on the U.S.-Mexico border wall, $3 billion for new border technology, and $3 billion for new border surveillance. See “Congress Throws More Money at Removing Immigrants than Most Countries Spend on Their Armies.”
    

  • To encourage self-deportation of immigrants and lawful workers, OBBBA taxes money that migrant workers send home to care for their families.
    

  • To be sure, the borders must be secure and all people should immigrate legally. However, the Trump Administration does not support reasonable levels of legal immigration necessary for a robust economy as reflected in OBBBA’s hefty new fees on work permits. See also the recent statement by Agriculture Secretary Brooke Rollins pledging no compromise on mass deportations and “a 100% American workforce.” A paper by the Federal Reserve Bank of Dallas concludes that Trump’s mass deportations have the potential to substantially reduce U.S. economic growth.
    

  • Moreover, the loss of payroll taxes from millions of deported workers will hasten the insolvency of Social Security and Medicare Trust Funds—already projected to go bust in 2033.
    

• OBBBA repeals or phases out nearly all of the nation’s clean energy incentives and investments, and increases the use of fossil fuels—hastening, rather than slowing, the dangerous effects of climate change: increasing wildfires, droughts, floods, and extreme weather across America.
  

  • Phases out tax credits for clean electricity production—wind and solar would terminate within 1-2 years, while nuclear, geothermal and battery projects would have more time.
    

  • Terminates tax credits on 9/30/2025 for companies buying electric cars or trucks and individuals purchasing new or used electric vehicles.
    

  • Terminates on 12/31/2025 the residential clean energy credit (for rooftop solar, heat pumps, etc.).
    

  • Phases out automaker fuel economy penalties and repeals or phases out numerous other provisions explained HERE.
    

  • Increases burning of fossil fuels (coal, oil and gas) by: rescinding a moratorium on new coal leasing; increasing timber harvesting (reducing the ability of the nation’s forests to absorb CO2; and increasing oil and gas leasing onshore, offshore and in Alaska.
    

OBBBA: Provisions Removed

Following are provisions you may have seen in earlier versions of OBBBA that were removed from the final bill (due to the Byrd Rule or to secure GOP votes for passage).

• Third party litigation funding tax.

• Medicaid funding boost for Alaska and Hawaii.

• Banning the use of Medicaid for gender care for minors and adults.

• Reducing Medicaid funding to states that use their own funds to cover undocumented immigrants.

• Mandatory sales of federal lands for more housing.

• A provision aimed at barring states from regulating Artificial Intelligence.

THE WEEK’S MUST READ: Big Beautiful Bill? It’s Certainly Big. But the ugly new law is one of the least popular acts ever.

With two more megabills already planned by President Trump and Speaker Johnson, subscribe to Trillions to receive weekly updates.

About the author: Charles S. Konigsberg, J.D., served as Assistant Director at the White House Office of Management and Budget for three successive Budget Directors; General Counsel at the U.S. Senate Finance Committee; Minority Chief Counsel at the U.S. Senate Rules Committee; Staff Attorney at the U.S. Senate Budget Committee; Director of Congressional Affairs at CFPB and AmeriCorps; and Staff Director of a national bipartisan budget task force.

He is author of the book, Trillions: A Primer on Federal Spending, Taxes, the U.S. Debt Ceiling, and Fiscal Law. Click here to purchase.

He is also Publisher of Appropriations.com which tracks appropriation bills; and GovBudget.com which tracks major federal developments, by subject area, each day.

Speaking engagements and press interviews can be scheduled by calling: (202) 818-8578 or (301) 509-5688. Email comments, suggestions, and questions to: ckonigsberg@capitolpublicpolicy.com.