U.S. Tax Reform Bill Faces Republican Opposition, Adds $370 Billion to Deficit

The focus of the market has shifted to the U.S. tax reform bill, which aims to reshape the functions of the federal government and the economic landscape of the United States. The bill, which includes significant tax cuts and spending reductions, has been introduced in Congress. However, the bill faces significant opposition within the Republican Party, making its future uncertain.

The House Republican leadership recently released a new tax cut and spending reduction bill, aiming to submit it for a full vote in the House before Memorial Day. The bill will then be sent to the Senate for review. President Trump welcomed the bill on Monday, calling it a "magnificent and beautiful bill" and expressing his hope to sign it into law by July 4th.

The comprehensive tax and immigration reform package includes extending the 2017 tax cuts, significantly increasing border security spending, reducing multiple social welfare programs, limiting climate change investments, and introducing several innovative tax credits. Republicans can bypass the 60-vote threshold for debate in the Senate through a process called "budget reconciliation," allowing them to pass Trump's agenda without Democratic support. However, there are still disagreements among Republican lawmakers over the details of the bill.

Fiscal conservatives criticize the plan for not effectively curbing the growing federal deficit. The latest assessment indicates that the Republican tax bill will add 370 billion dollars to the U.S. deficit over the next decade. Although this figure is within the 450 billion dollars budget framework approved by Congress earlier this year, it has sparked dissatisfaction among budget hawks within the party. Some Republicans are concerned about energy projects in their districts being hindered or oppose changes to the state and local tax deduction cap. Additionally, the proposed cuts to medical assistance have sparked protests.

However, the Republicans hold a narrow majority of 220 to 213 in the House, meaning they can only afford a few defections. Similarly, the 53-47 majority in the Senate is not sufficient to guarantee the bill's smooth passage. The core components of the bill include extending Trump's tax cuts, partially relaxing the SALT cap, tightening immigration policies, reducing social welfare programs, introducing targeted tax cuts, restructuring education policies, shifting energy policies, increasing defense spending, and raising the debt ceiling.

The bill extends the personal tax cuts from the 2017 Tax Cuts and Jobs Act, partially fulfilling Trump's campaign promises. It also plans to establish new savings accounts for newborns. The 2017 tax cuts benefited almost all income levels, but the primary beneficiaries were high-income individuals and businesses. The corporate tax cuts are permanent, while the individual cuts are set to expire at the end of this year. The new bill not only extends the lower individual tax rates but also plans to gradually increase the state and local tax (SALT) deduction cap over the next four years: the joint filing cap will rise to 32,000 dollars, and the individual filing cap will rise to 16,000 dollars.

The bill allocates over 140 billion dollars for border security and immigration enforcement, with more than 500 million dollars earmarked for expanding the U.S.-Mexico border wall and other defensive structures. Approximately 450 million dollars will be invested in building and maintaining detention centers, and an additional 140 million dollars will be used for deportation operations. This budget allocation underscores the new administration's tough stance on immigration and could create new business opportunities for related construction, security, and contracting companies.

The most controversial part of the bill is the significant reduction in Medicaid funding, which is estimated to cut 62.5 billion dollars over ten years, potentially leaving 8.7 million people without health insurance and increasing the number of uninsured by 7.6 million. The bill introduces new requirements, including a cost-sharing mechanism for individuals earning more than 100% of the federal poverty line and work requirements for most healthy, childless adults. On Tuesday, as the House Energy and Commerce Committee prepared to review these provisions, dozens of protesters, many in wheelchairs, gathered in the hallways to protest. Josephine Rios, a caregiver from California, pleaded at the entrance to the members: "Where is your conscience? Please vote no."

The bill also shifts more of the cost of managing the Supplemental Nutrition Assistance Program (SNAP) to state governments. Twenty-eight states with high "improper payment rates" will be required to cover 25% of the welfare distribution costs and 75% of the administrative expenses. This will force local governments to make difficult choices between cutting welfare and raising taxes. The bill includes several structural tax cuts aimed at specific groups, such as an additional 4,000 dollars standard deduction for taxpayers aged 65 and above, tax cuts for service industry tips, a new deduction mechanism to exempt overtime wages from taxation, and a 10,000 dollars loan interest deduction for consumers purchasing American-made cars over four years. The tax credit for each child will increase from 2,000 dollars to 2,500 dollars. Notably, most tax benefits require taxpayers to have a Social Security number, effectively limiting non-citizens' eligibility for these benefits.

The bill also restructures education funding by significantly increasing taxes on the earnings of university endowment funds and implementing a tiered tax rate system based on per-student endowment size. It establishes a four-year, 200 million dollars tax credit program to encourage families to pay for private school or home education expenses. Another transformative measure is the creation of "MAGA accounts": newborns will receive an initial deposit of 1,000 dollars, and parents or guardians can contribute up to 5,000 dollars tax-free each year until the beneficiary turns 31.

The bill shifts energy policies to support fossil fuels and reduce green incentives. It eliminates the 7,500 dollars federal tax credit for purchasing electric vehicles and plans to gradually phase out financial incentives for clean energy sources like wind and solar power. In contrast, fossil fuel policies are fully revived. According to the Natural Resources Committee's assessment, the bill will raise approximately 200 million dollars through mandatory oil and gas lease auctions in the Gulf of Mexico and Alaska's protected areas.

The bill allocates approximately 1.5 billion dollars to the Department of Defense, covering multiple priority areas: 340 million dollars for ammunition and supply chain strengthening, 336 million dollars for shipbuilding projects, and 200 million dollars for missile defense and space force, including support for the "Golden Dome" intercontinental ballistic missile defense system, one of Trump's strategic military projects. The bill also raises the debt ceiling by 400 billion dollars, providing space for future budget execution. The U.S. government is theoretically set to reach its debt limit by the end of 2024, and the Treasury Department is using "extraordinary measures" to delay the risk of default. The Treasury Department stated that these measures will be exhausted by August at the latest.