Bill in question falls short of being transformative
The One Big Beautiful Bill Act (OBBB), a legislative proposal that aims to make permanent the tax cuts and benefits of the 2017 Tax Cuts and Jobs Act, has sparked much debate in recent times. Here's a breakdown of its potential effects on federal revenue, health spending, and other key areas.
The OBBB is projected to reduce federal revenue by $4.4 trillion over a ten-year budget window. This reduction is partially due to the termination of $500 billion in tax credits for "green energy" established under the Biden administration, the "no tax on tips" provision, and Trump's 2024 campaign tax pledges. The bill's "America First" international tax reforms amount to $180 billion.
In the realm of health spending, the OBBB's impacts are more complex. Despite the cuts, federal health spending is projected to grow from approximately $2 trillion in 2025 to $3.4 trillion in 2035. This growth is attributed to the relentless growth of Medicaid and Medicare, which is expected to push existing spending commitments from 21.1 percent to 24.4 percent of GDP.
The Congressional Budget Office (CBO) expects the OBBB to reduce projected federal health-care spending by 3.8 percent over the next ten years, much less than the 8.8 percent reduction enacted by the Balanced Budget Act of 1997. However, Larry Levitt, writing in the New York Times, argues that the OBBB's estimated $1.15 trillion ten-year cuts to federal health-care spending are the largest ever, but only because current health spending is much higher than in the past.
The OBBB makes smaller reductions in federal revenue than the 2012 bipartisan agreement that made the George W. Bush tax cuts permanent. Moreover, the bill makes no attempt to limit states' ability to claim ever more federal funding by continually expanding their Medicaid programs.
The path of the OBBB, given the ever-mounting debt, is unsustainable. Excluding health care, the OBBB will increase federal spending slightly, with more spending on defense and immigration enforcement exceeding savings from reduced student-loan subsidies and the expansion of work requirements for food stamps.
A third of the bill's projected health-care savings come from restricting able-bodied adults' eligibility for Medicaid with vague "community engagement" requirements. However, the resulting savings and associated losses of health-care coverage are likely greatly overestimated. Another third of savings come from restrictions on states' ability to inflate federal reimbursements for Medicaid costs, but these reforms would likely do little to reduce access to care.
The last tranche of health-care savings comes from increased oversight and verification of eligibility for Medicaid and Obamacare benefits, and this reform is likely to generate substantial real savings, though some who genuinely need coverage may lose it.
In conclusion, the OBBB, while making permanent the tax cuts and benefits of the 2017 Tax Cuts and Jobs Act, is projected to reduce federal revenue significantly and have a mixed impact on health spending. The bill's path, given the ever-mounting debt, raises concerns about sustainability, and neither party seems eager to address this issue head-on. As interest rates rise, the need for both parties to address this issue becomes increasingly urgent.
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