The bill is certainly big, but it’s damn ugly.
Republicans Surrender
Please note The GOP Surrenders on Medicaid
The House bill shrinks from a fight over able-bodied men on the dole.
The work requirement doesn’t kick in until 2029—a political lifetime from now. The bill also sets up a waiver process, which states have long abused to evade work rules in food stamps.
But far more notable is that the bill fails to end Medicaid’s outrageous bias toward prime-age men who can work. The feds pay 90% of the cost of able-bodied adults eligible for Medicaid under the Affordable Care Act—but only roughly 50% to 77% (depending on the state) for pregnant women, the blind and so on.
Republicans won’t even insist that able-bodied persons must work.
Pathetic.
The Ugly Truth About the ‘Big Beautiful Bill’
Senator Ron Johnson (R. WI) explains The Ugly Truth About the ‘Big Beautiful Bill’
The “One Big Beautiful Bill” that Congress is working on is certainly big, but beauty is in the eye of the beholder. Too often the reality of these budget debates get obscured in details, politically charged issues and demagoguery. Let me attempt to clarify the current discussion by focusing on the most important facts and numbers.
In fiscal 2019, federal outlays totaled $4.45 trillion, or 20.6% of gross domestic product. This year, according to the Congressional Budget Office’s January 2025 projection, total outlays will be $7.03 trillion, or 23.3% of GDP. That’s a 58% increase over six years. The CBO projects federal outlays will total $89.3 trillion across fiscal 2026-35. Much of the blame goes to pandemic spending, but lockdowns are long over. There’s nothing now to justify this abnormal level of government spending. Pathetically, Congress is having a hard time agreeing on a reduction of even $1.5 trillion from that 10-year amount. That’s a 1.68% cut—a little more than a rounding error. My guess is that much of that minuscule decrease will be backloaded to the end of the 10 years for which Congress is now budgeting, increasing the probability those savings will never be realized.
Other than during World War II, the increase in spending we’ve experienced over the past six years is unprecedented. After the war, Congress and President Truman understood the importance of returning spending to normal levels. In 1941, total outlays were $13.7 billion, or 11.7% of GDP. They peaked in 1945 at $92.7 billion, or 41% of GDP. That was a 577% increase, 10 times as large as what we experienced with the pandemic. Yet by 1948, federal outlays were $29.8 billion and back to a little over 11% of GDP.
Under every scenario now being considered, federal debt continues to skyrocket from its current level of almost $37 trillion. The CBO’s current projection adds around $22 trillion over the next 10 years, resulting in total debt of approximately $59 trillion—134% of GDP—in 2035. That projection assumes an automatic tax increase will occur in 2026 when provisions of the 2017 tax cuts expire, increasing revenue from 17.1% of GDP in fiscal 2025 to an average of 18.1% over the next 10 years. With the CBO projecting 10-year GDP at $373 trillion, that 1% increase represents $3.7 trillion of additional revenue and lower debt.
No one can accurately predict the dynamic economic effects of changes in tax law, tariffs and the current trade war. But by repealing the automatic tax increase, adding $1.5 trillion in additional tax cuts, pumping around $340 billion into additional border and defense spending, and reducing other spending by at most $1.5 trillion, the One Big Beautiful Bill will almost certainly add to our deficits and debt. I doubt Mr. Trump’s voters expect us to continue spending at President Biden’s levels, which led to the inflation they elected Republicans last year to stop. I doubt, too, that Trump voters will be elated to see the GOP embrace Democratic policies and priorities—including ObamaCare, which seems to have found new life under the name “Medicaid expansion.” And I can’t imagine that they want Republicans to increase annual deficits. That’s why I can’t support this bill as it’s currently being discussed and doubt that it will pass the Senate.
It’s also why I’m asking the president and congressional leaders to reconsider a multistep strategy on budget reconciliation. By immediately passing a bill based on the Senate’s original budget resolution, we can fund border security and defense priorities and bank $850 billion in real spending reductions. The next step would be to pass a bill that extends current tax law to prevent the automatic 2026 tax increase, and avoids default by including a smaller increase in the debt ceiling that maintains the pressure and leverage to achieve future spending reductions.
With those goals achieved, sufficient incentive would remain to address President Trump’s tax proposals focusing on working men and women and the already-expired business tax provisions of his 2017 tax law. It would also give us the time to simplify and rationalize the tax code, and go line by line through the entire federal budget to uncover, expose, and eliminate the hundreds of billions of dollars of waste, fraud, and abuse that the DOGE effort has shown exists. If we don’t, America is headed off a cliff.
Powell Sinks to Trump’s Level?
“When the facts change, I change my mind. What do you do, sir?”
Unfortunately, that’s paywalled. But Booth has been all over Powell for not cutting rates.
Time for the Fed to Do What?
My position remains as follows.
Rate Cuts? Seriously?
Earlier today I noted Fed Rate Cut Odds Plunge on Trump-China Tariff Walk Backs
Empty Shelves for Christmas Likely Avoided
One thing that’s changed is empty shelves for Christmas have been avoided.
Shipping costs that had plunged will now soar. And we will have approximately a 40 percent increase in the price of goods from China.
Fiscally nothing has changed. The budget rates to be an absolute disaster with even Republicans unwilling to cut much of anything.
The change in shipping costs, 40 percent tariffs on goods from China, and the deficit all add upward. pressure on inflation.
Bond Market Reaction
The bond market reacted appropriately today.
The 10-year treasury yield is now up 10 basis points on the day to 4.48 percent. And the 30-year long-bond is now up 8 basis points to 4.91 percent.
Perhaps tomorrow we have some good news on the CPI. But if not, expect another jump in long-term yields.