One, Big, Beautiful Bill: The Good, the Bad, and the Ugly

From generous tax breaks to costly trade-offs, the House GOP’s One, Big, Beautiful Bill has a little of everything. It’s a sweeping attempt to extend key provisions of the 2017 Tax Cuts and Jobs Act before they expire in 2026—but what’s actually in it?

Kyle Hulehan and Erica York are joined by Garett Watson, Director of Policy Analysis at the Tax Foundation, to break down the good, the bad, and the ugly: who benefits, what it could mean for the economy, and how it might reshape your tax bill.

Learn more: 

Budget Reconciliation Tracker: https://taxfoundation.org/research/all/federal/trump-tax-cuts-2025-budget-reconciliation/

“Big Beautiful Bill” House GOP Tax Plan: Preliminary Details and Analysis: https://taxfoundation.org/research/all/federal/big-beautiful-bill-house-gop-tax-plan/

The Good, the Bad, and the Ugly in the One, Big, Beautiful Bill: https://taxfoundation.org/blog/one-big-beautiful-bill-pros-cons/

House Tax Package Could Double Economic Growth Impact by Prioritizing Permanence for TCJA Business Provisions: https://taxfoundation.org/blog/house-tax-plan-economic-growth-impact-business-tax-permanent/

A More Generous SALT Deduction Cap in the Big, Beautiful Bill Would Cost Revenue and Primarily Benefit High Earners: https://taxfoundation.org/blog/salt-deduction-cap-increase-proposal-analysis/

House “One Big Beautiful Bill” Riddled with Temporary Tax Policy: https://taxfoundation.org/blog/house-one-big-beautiful-bill-temporary-tax-policy/

Current Trump Tariffs Threaten to Offset Benefits of Promised Tax Cuts: https://taxfoundation.org/blog/trump-tariffs-tax-cuts/

House GOP’s Approach to the IRA Clean Energy Tax Credits: Five Things to Know: https://taxfoundation.org/blog/ira-clean-energy-tax-credits-house-gop-ways-means-bill/

Transcript

Kyle Hulehan: 0:00

Hello and welcome to the Deduction of Tax Foundation podcast. I'm your host, Kyle Houlahan, and today we are back with another episode with Erica York and Garrett Watson, the Director of policy Analysis here at the Tax Foundation. So Garrett and I kind of already broke down the big beautiful Bill, uh, in an episode last week, but now we got Erica on the show here. So Erica. Let's talk about this real quick as well. Um, what do you think are like the most significant provisions in the new tax package and how does that build on or depart from the 2017 Tax Cuts and Jobs Act?

Erica York: 0:33

Yeah, I'd separat it into two buckets. First is just all the expiring stuff from the 2017 tax law. Um, on the individual side, especially those all get a. Permanent extension. Um, so that's, that's a big improvement for taxpayers because all of this is up in the air. You know, the child tax credit, the standard deduction, the rates and brackets, those would all be set in place. And then the other bucket is. A bunch of new stuff and temporary stuff. Um, so on the new stuff, it's the things we heard from Trump on the campaign trail. Like no tax on tips, no tax on overtime, no tax on auto loan interest. And then rather than no tax on social security, we have this bonus deduction for senior citizens. Um. then also in this bucket of temporary stuff are some, some really good provisions like bonus expensing, r and d, expensing a new type of special deduction or bonus deduction for structures investment. Those were all really good things that would build on the improvements the TCJA made, but they would sunset after five years, um, rather than be made permanent. So overall I'd say it, it really ends up being a mixed bag because while in some cases the bill would enhance the stability and the certainty of the tax code in others, it adds a bunch of new complicated provisions and then it sunsets some of the most important things.

Kyle Hulehan: 2:00

And real quick, just, just to clarify this, when you say sunset, you're, and like the problem with sunsetting something is, is what? What is the biggest issue with that?

Erica York: 2:09

The biggest issue is certainty. So if you think of a business that's wanting to build a factory in the United States, it's not just gonna decide to do that because it gets a temporary, you know, five year tax cut. A, a new factory is like a really big, long-term investment. You need stability over the long. Long-term in order to make that decision, we're talking like, you know, 15, 30 years. And so a temporary tax cut doesn't really change the calculus for a big long-term investment. Um, if you wanna change that calculus, you need to make that policy set for the long-term or at least as much as you can. Five years just really falls short of that.

Kyle Hulehan: 2:49

Got it.

Erica York: 2:50

Garrett, um, pivoting to, to you on, on the. The, like, the overall bill and whether it's like a really big improvement for taxpayers or not. One of the things we're hearing quite a bit is that having the larger standard deduction, having these rates and brackets set in place will really make things simpler for taxpayers. Um, is, is that true or what do you make of that?

Garrett Watson: 3:12

So I think there are some elements of this package that would help improve simplicity. The biggest of which is that permanency for the underlying. 2017, uh, tax law provisions that are expiring. When you think about, uh, the doubling of this standard deduction from 2017 to 2018, uh, and that's continuation, uh, from 2026 onward, that's going to reduce the number of folks who are itemizing, which stood at. Rounding here, roughly one third of all taxpayers who are itemizing in 2017 down to about 9% of taxpayers today. And we're avoiding going back to that higher share of taxpayers who would itemize. And of course, uh, for folks who haven't itemized, uh, it does require both, uh, tracking a lot of. Uh, details, receipts, expenses related to itemization, uh, and of course also opens taxpayers up to, uh, inquiries from the IRS on those particular deductions. This standard deduction doesn't have those challenges from a complexity perspective, so that is one benefit. Uh, on the other hand, uh, there is, uh, there are some additional temporary measures in the bill. to the 2017 law, some of which Erica you just mentioned. We also have some temporary, uh, expansions to the standard deduction worth a thousand dollars for a single uh, taxpayer,$2,000 for joint households for a few years. We have a temporary expansion of the child credit up to$2,500, and some of that is being marketed as additional relief for families. and taxpayers overall, but, uh, they are temporary and they will require taxpayers to know about these new temporary rules on top of the existing, uh, code. So that does add a little bit of complexity, or at least a potential source of confusion over the next few years. That's also true when you layer on these new, uh, exemptions for, uh, tipped income for overtime. These are all new things, uh, that, uh, the IRS with the guide taxpayers on, and that could create new sources of complexity, uh, particularly when they're in effect through. Uh, 2028.

Erica York: 5:03

Yeah, I, we, we saw a little bit of that with the original TCJA. It made these improvements like the larger standard deduction, but then it added complexities like the section 1 99, a pass through deduction on net. I think it was safe to say the 2017 law, like. Overall resulted in simplification. I think it's harder to make that call with this law because it's really justing in simplifications we've already had, but then layering on so many new things that are re requiring, like new reporting from businesses new. Who knows what, like the lines on, on the form, 10 40 or different schedules to do these, like overtime tax exemptions, um, that, that probably tip the balance, uh, away from overall simplification toward more complexity. I.

Kyle Hulehan: 5:50

Moving to maybe some of the more negative side of the bills that we see. Uh, you know, it's funny. When I think of the word salt, now I actually think of state and local deduction and not the thing you put on food because we've been talking about salt so much. Garrett in, in this bill, the, there's a lot of debate over the salt deduction cap and you know, what it proposes and how do these changes reflect political tensions, you know, uh, how do you see this and, and does it add like a lot of fiscal cost?

Garrett Watson: 6:16

Yeah, the salt cap debate has been a, a central one in trying to get a degree of consensus amongst Republicans in the house, given the very narrow majorities as a recap, uh, in 2017. Uh, and prior to that, there was an unlimited deduction on federal returns for. Taxpayers who itemize and have state and local taxes, uh, that they're paying and can deduct against their federal, uh, their federal, uh, taxable income. So that includes things like your state and local in, uh, income tax. It includes property taxes. Those are probably the two most prominent. It also could include sales taxes in lieu of income tax and some other types of taxes like real estate transfer taxes and for certain taxpayers. And, uh, high cost of living, high income, high tax states, uh, that can easily be in the tens of thousands of dollars for higher income. Households as part of the 2017 tax law, uh, policymakers as part of this broader package of tax cuts included a base broadener that capped the amount of state and local taxes that could be deducted on federal returns to$10,000 for everyone. That's 10,$10,000 for all filing statuses and, uh, was not, uh, indexed for inflation, uh, moving forward. That was scheduled to expire at the end of 2025, along with the other individual provisions and, uh, as expected, as ignited a big debate. About the future of that cap because it did represent a substantial gross, uh, tax hike on its own, on certain, uh, taxpayers. It has a very strong geographic component because state and local taxes paid vary quite a bit across the country. When you look at certain, uh, uh, states and localities on the coast, for example, they may have much higher liabilities than places in the interior and the Midwest of the country, for example. And one thing that's been lacking, uh, up to. This bill was a consensus agreement by policymakers who wanted to see a more generous cap on what that may look like. Uh, they did land on something that, uh, passed in this, in this, uh, bill. After a few different iterations, uh, the proposal would, uh, extend and make permanent I. A cap, but it would be a more generous cap than the$10,000 that's currently prevailed. So it would increase it to$40,000, uh, for most taxpayers. But they added a new element to this, which is an income limit, so you can get a$40,000 salt deduction, which is more generous than current policy. Uh, up, up until you hit$500,000 in income and then it phases out basically between 500 and$600,000 in income. Um, and then it goes back down to that$10,000 amount, uh, for, for joint households. And so that, uh, will limit the bene the benefits of that more generous cap, uh, for the very highest of earners. Uh, but we'll provide, um, that benefit for. to upper middle earners who do, uh, have, uh, salt deductions in excess of$10,000. We are looking at, it is a, a substantial tax cut on top of the existing cuts. It's about$300 billion, maybe a bit north of that over 10 years. Net of those additional limits. Uh, the proposal would also limit, uh, certain, uh, uh, strategies to get around the cap using passer businesses. Um, and so there's some additional hikes there. Uh, the big question moving forward, I think is going to be whether or not the Senate finds this, uh, design attractive. There's a lot of interest from the policy perspective of, uh, cementing this base broadener for revenue purposes because that is part of the broader, uh, uh, sort of, um, motivation of the 2017 tax law to broaden the base and lower the rates, and a lot of ways making into salt cap more generous moves in the opposite direction, undermines that legacy. one of the more positive legacies of the 2017 tax law and, uh, the Senate may be a little more skeptical of that. So, uh, still a long road ahead for folks who wanna see changes to salt. Uh, one thing, one last thing I, I'd mention on that of course is there would be, I think, a silver lining for everyone involved, even if no one is exactly happy with whatever ends up being produced in the long run. If there's some permanency here. Going back to the, um, the temporary discussion, right? The existing cap is a lot of uncertainty'cause no one knows next year what that may look like. So having some permanency, getting this off of the policy debate that's been going on for years and years would be one win, even if no one's exactly happy with the final outcome of the design.

Kyle Hulehan: 10:12

I, I think that's true in policy a lot of times is there's always a group that's very unhappy. It's really hard to kind of, uh, politics. We've talked about this a lot. Politics is, and, and laws. It's a lot of narrow wins. It's a lot of marginal. Is this just a little bit better than it was before? So we deal with that a lot here. I. Um, and so, wait, we're still gonna stay on this. You know, there's the debate of how much this bill will cost. There's been some stuff in the news recently that many of you listeners have probably heard about. So could you, you know, break this down for us and, uh, I guess I'll start with Erica. You know, how much do, will it add to the deficit and what's kind of going on with this debate?

Erica York: 10:45

Yeah, so before accounting for any added interest costs because the deficit goes up, um, we estimate that. The primary deficit itself will increase by about$2.6 trillion over the next 10 years because of the tax and spending changes in this bill. On the tax side, we estimate that it reduces federal tax revenues by a little bit more than$4 trillion over the budget window. It does include, um, spending reductions about one and a half trillion dollars of reduced. Spending. So when you combine those two, that's where you get the roughly$2.6 trillion increase in the deficit. Now you'll hear, um, some folks say, well, that's not doing the math right. You need to do the math. Right? they mean by that is don't count. Most of the tax cuts as a deficit increase, they, they wanna change the rules and say that if you continue policies that are in effect today, that's not really reducing. Tax revenue. If you grant that, then that just means that baseline deficits are going to be higher anyway. So you might not count that cost as part of the official score, but you would have to count it as part of like the real world effect of what's happening to tax revenues. Um, so either way, deficits under this bill would be significantly higher. Um, I think, you know, the, the. Correct way. The right way. According to conventions and rules, rules that were used to pass the original tax law, um, are that this is a tax cut that reduces revenue. if you wanna pretend that the rules are different and say, no, it doesn't, well then you also have to say that deficits are going to be higher in the baseline because we are going to assume that these tax cuts continue indefinitely, and that means lower tax revenues. Um, so really any way you slice it, uh, the fiscal trajectory of the United States is significantly higher deficits and higher debt over the next decade under the combination of policies being considered here.

Garrett Watson: 12:50

I think it's also helpful, uh, to look at a couple other perspectives. One is, uh, the, uh, the numbers that we used, uh, to, uh, we that we produced to score this, uh, that are commonly cited, score the bill as written. And so, of course, um, as Erica just mentioned, right, there's a lot of, um, potential game playing with the, either the baseline or whether or not we're including, uh, uh, things that are scheduled to expire that are not intended to actually expire. Um, or, or applying temporary policy and consistently across. Legislation. So there have been some estimates, uh, and we're actually working right now on producing our own estimate of what the cost of this package would look like if, uh, all the provisions were made permanent, including in the tax side, most prominently the new, uh, tax cuts on tips over time, the new senior deduction, the auto loan deduction, et cetera. Uh, and that, uh, broadly speaking, uh, puts the, the, the bill overall, uh, another, at least another trillion dollars more expensive over 10 years. And that's just in the budget window. Um, and that even that may be, uh, somewhat conservative depending on the path of. Uh, the cost of some of these provisions. And so I think that's, uh, one way to think about it is if there is an intent, hey, uh, these new, um, no taxes on tips, do we really intend that to expire in, uh, four years? Or is it going to be an electoral issue where it's gonna be extended? Uh, we did see that happen in TCJA, right? Where there were base broadens that were built in that. We're not intended to take effect. That did take effect, for example, r and d, amortization and, and bonus, uh, phasing down. Uh, and there's a similar risk here, I think. Um, the other of course, uh, you know, revenue area, which I think we'll touch on a little later, is just the status of, of tariffs and other, uh, fiscal policy that could impact, uh, this broader debate or the fiscal trajectory of the us. But if anything, that's even more uncertain given some of the more recent developments, which we'll we'll touch on in a little bit.

Kyle Hulehan: 14:37

Honestly, what I can think of is how dare you guys try to stick to like regular rules and conventions and what we've done before? Come on, it's a new time, new age. We gotta, we gotta do things differently now. So, um, anyway, moving on. Uh, so there are provisions for tax exemptions on tips and overtime, and that's strong. Some people love it. I mean, some people criticize it, uh, that they're very interesting to say the least. Uh, but Erica, could you break that down for us? You know, uh, do they complicate matters? Do they pay off at all? What do you think?

Erica York: 15:09

Yeah, so if you think of the idea of tax reform and like what makes a tax reform good, it is something that makes the tax code more neutral. I. That makes it more simple and that makes it more efficient. So we want different types of income treated the same way. We want income all to be taxable, but at a lower rate rather than carving out, you know, special low rates for certain things and then higher rates on other things.'cause that creates a lot of. Distortions. And if we look at what these provisions do, they obviously don't line up with that ideal of tax reform. They are creating special treatment for certain types of workers, depending on the industry they're in. Um, and, you know, it's, it's well meant. Um, it's, it's trying to. Offer tax relief to working class Americans, and that's a good goal. But why would you say, you know, let's say a waiter making$30,000 a year is not gonna get a big tax cut, but a clerk at a store also making$30,000 a year isn't gonna get any tax cut. Um, so there's. Equity problems between people with similar levels of income, but who earn that income in different ways. It could be taxed differently. It also creates a lot of incentives for gaming. Like if my income is in tips or if I am making overtime, that gets. Exempt from tax. Um, so there's a big incentive to try to structure your pay in that way, and that requires Congress to then try to write guardrails to prevent that type of gaming. And it requires the IRS to, um, you know, clamp down and make sure that people are following those rules. All that gets really complicated when the alternative, something really simple, like an even larger standard deduction or a lower marginal tax rate, could offer similar relief to people at those income levels. Without all of this gaming and administrative complexity. So I think it's a, it's a real like failure on the part of lawmakers to enact tax reform that really improves the structure of the tax code and the incentives that people face. Instead, it worsens the structure of the tax code and tries to provide tax relief in a really targeted and complicated way.

Kyle Hulehan: 17:24

And you know, I'll say this, I was a server for many, many years and I, and I did that job, and I understand what it's like to do that. I think that the problem is, is it's nice when it benefits you. It's nice when something works out well. The problem is, is that. It's better when everyone can benefit. I, I think there's a much, we constantly are talking about this, like, is there a better way to do this? You can make a, you can make a carve out for something, you can make a tax credit, you can make a deduction. Or can we just simplify the whole thing? And that's what you guys are getting at over and over again. And that's what I think really makes sense here is like there's a much broader way to do all of this and a much simpler way to do the exact same thing. Help people who are not making a lot of money. That's great, but there's a better way to do it.

Erica York: 18:03

Yeah, exactly.

Garrett Watson: 18:04

And I think part of this, uh, the other risk long term, um, is that it also, it doesn't have a limiting principle behind it. And so there's gonna be, uh, incentives not only, not only to extend these new provisions that are very targeted, but also to maybe enhance them or to expand them to other, uh, types of income, other, you know, occupations, other folks who are seeing this and say, Hey, why don't we. as well. And the problem is it, it's compounding what is already a flawed approach rather than going at it in a more broad way. So that, that's another, I think, broader concern that this is almost like tax reform in reverse, in the long run, if it does get cemented in the, uh, in the tax code

Erica York: 18:42

​So we touched on this a little bit, but full expensing could have been the most pro-growth element of the 2017 tax law, had it been made permanent. And we're kind of seeing a repeat of that here because that provision again gets a temporary extension. But sunsets, Garrett, what do you think lawmakers are missing when it comes to the importance of permanence for this provision?

Garrett Watson: 19:05

So this was probably a, a major disappointment for us as, uh, to be expected to see, uh, on the one hand, one, you know, positive thing is it's better to have some sort of extension rather than nothing potentially. But this is a big missed opportunity to make a. are probably the most pro-growth elements of this package permanent, which includes extension of permanency for 100% bonus, uh, depreciation, going back to expensing for r and d investments, which is pretty important on several, in several respects in policy. Um, making more generous, the interest limitation, making that permanent, so there's some stability there. Uh, and, um, uh, there's also an additional temporary change, uh, a bonus, uh, deduction for structures, which, uh, we've been big, uh, fans of trying to improve cost recovery infrastructure so that they can, uh, we can improve their, uh, incentives for investment there. Uh, an area of potential underinvestment in the US over the last few years, uh, but that is also temporary over the next five years. And, uh, that, uh, is a missed opportunity because while we may see some short term bumps in the, uh, overall size of the economy from these provisions, the long run. Uh, it is going to be unchanged because the tax treatment isn't changing relative to, uh, today. And so you're gonna see a change in the pattern of investment as investment is accelerated to take advantage of this, uh, these provisions that are in place temporarily. But the overall long term size of the economy is unaffected. And so, uh, that, uh, of course was done potentially for revenue reasons, because, uh, it does, it is a one-time cost to move toward a better, uh, cost recovery for these in, uh, types of investments. Uh, but we, we ran the numbers and found that. Overall, if you take this package, which currently we score it as increasing in the long run size of the economy by about 0.8% in our latest estimates, uh, we're estimating that we could roughly add another, uh, 1% of long run, uh, uh, the long run size of the economy by making these business provisions from TCGA permanent. So that's more than doubling, uh, the, uh, overall, uh, growth effects. It would also increase long run American incomes as measured by, uh, GNP. Uh, and the other upside is, while this would have, of course, a, a conventional cost in the 10 year window, uh, rounding here, roughly$500 billion on a dynamic basis because they are some of the biggest, uh, pro-growth provisions per dollar revenue lost. Uh, we find that the dynamic cost would not be quite as big somewhere closer. The, the order of a hundred to$150 billion over. 10 years. So, uh, we're hoping that as this turns to the Senate, there may be more of a prioritization on permanency and stability there and, and the, uh, maximizing the growth potential of this package. Uh, of course, love to see potential, uh, uh, efficient offsets that could help with that revenue, uh, math if needed. Uh, because this is, uh, some of the best, uh, best way, probably the lowest hanging fruit to improve the package moving forward.

Kyle Hulehan: 21:48

All right, so we're talking about a bunch of different things here. We've hit on some of the things we'd like to change, but I'm just gonna wave my magic wand here and I'm gonna pass it over to Erica and say. You know, if you could change one thing going forward, what do you think it would be and how would that long-term impact, you know, have on the tax code?

Erica York: 22:05

I would propose a swap. So take, uh, these like temporary grab bag provisions, like no tax on tips, no tax on overtime, the last minute boost to the salt deduction. Um, claw those back significantly. Put limitations on those with salt. Just go back to like the, the original house bill that would give you enough revenue to make the bonus depreciation. RD expensing structures, provision permanent. Um, so you would get that doubling more than doubling of the economic effect, and you could keep the score on a conventional basis the same. If you made that swap, that would get rid of a lot of the complex things. It would add certainty by getting rid of some of the sunsets and making it permanent, so it a significant enhancement to the bill that could be done within a revenue neutral context given the the parameters they've already outlined.

Kyle Hulehan: 23:00

And Garrett, what about you?

Garrett Watson: 23:01

I definitely like that one. I think another one that's, uh, worth thinking about if you abstract away all the political challeng. Which, that's the fun part about being at a think tank is we, uh, don't have to worry about that as much. Would be basically to, uh, ask all of these new targeted, uh, tax exemptions, tax cuts and put that, uh, revenue to work elsewhere, either to help with the revenue cost of the broader bill or to, if you wanted to provide other tax relief, even just doubling down on the expanded standard deduction and making that permanent would, uh, even though it's not, uh, majorly pro-growth. Be our simplification, provide more, uh, stability. And for a lot of folks, uh, who are being targeted by these tax cuts still benefit them, right? The distribution would look a little bit different, but, uh, it still would fulfill some of the spirit of that, uh, of that, the goal of those policy changes without introducing any of the complexity or undermining broader reform. Uh, so that's another, another option, though. There's uphill battles politically, as we know with that approach.

Kyle Hulehan: 23:56

There will continue to be uphill battles politically. We're gonna keep you guys updated as things move over to the Senate. There's going to be more coming out on this. We are not done by any means with the one big beautiful Bill. We will try to answer a lot of your questions. We appreciate a lot of you for commenting here on YouTube and, and getting everything out everywhere. It was, uh, uh, a great to see, uh, all the responses from the last episode. So before we sign off, you guys know. You can ask us these questions. You've been asking us questions and we'll try to address them, or you can send us an email at podcast@taxfoundation.org. You can slide into the dms on Twitter if you want. Thank you for listening.