Gremlins ate my podcast, but I salvaged some of the conversation
I recorded an excellent interview with Phil Kerpen from American Commitment last week about the One Big Beautiful Bill, and could not get it from recording to publication. There were insurmountable technical issues. It was such a crash and burn that the AI-generated transcript was a bit of a cluster as well.,
It won’t likely happen again. I’ve worked out the issues for future programs, but not in time to cobble together an actual “episode.”
I have managed to cobble together some highlights from that transcript and there’s some good stuff there, but you have to read it.
We started with the REINS Act, which was in the OBBB, but then it was yanked because the Senate Parliamentarian said you couldn’t include it in a reconciliation package, which is crazy, as Phil explained. We also get into tax cuts, Medicaid, HSAs, Education Freedom, spending, subsidies, and the deficit.
REINS and Parlimentarian hijinks
Yeah, it’s pretty simple. Basically, it’s a regulatory freeze. There would be no new federal regulations of any economic significance unless the agency that wants the regulation writes it as a proposal and sends it to Congress and gets affirmative approval in both the House and the Senate. So in other words, for the major economic regulations, we would follow the legislative process. They would have to be voted and approved by a majority in the House and Senate instead of the agency just being able to directly implement them.
And this would prevent this wild pendulum swing that we’ve had in recent years where Obama put all these crazy regulations on. Trump repealed them all. Biden came back, put them all on, and then some, and now Trump is repealing them again. If we had this in place, we would have many fewer regulations. They would be of a higher quality. And when you do have a bad one, you’d be able to look up who voted for it and hold them accountable. wouldn’t all just swing back and forth on the presidential. So it would be a huge, huge positive.
The Heritage Foundation found that this would reduce federal debt, deficits by about $1.1 trillion over the next 10 years because we’d have much stronger economic growth and higher revenues with a regulatory freeze and we’d also have less spending because we’d have more jobs and less people dependent on government programs. So this actually, had it been allowed to be included, would have been the largest deficit reducer in the whole bill. So when the parliamentarian says, no, this is not budgetary in nature, it’s kind of like, well, wait a second, this would have been like the biggest budgetary thing in the whole bill actually.
And according to Phil, there were a few things in the OBBB that were not “budgetary.”
Parlimentarian hijinks part II
I’m pretty sure there’s probably some things in that bill that aren’t budgetary. In fact, I know of a couple. There’s some firearms regulations, things in there. There’s a bunch of stuff in there. Some of the decisions were so bizarre.
One of the other things in this big, beautiful bill that I was tracking pretty closely were the school choice provisions because, you know, we were hoping that we could use this bill to bring private school scholarships from all 50 states because we’ve got a lot of success at the state level in the red states and some of the purple states. We’ve got a lot of places where there are just no scholarships available at all because the teachers unions are too powerful and we wanted it to be in all 50 states.
So the house version of this had a dollar for dollar tax credit to scholarship granting organizations for up to 10 % of your income. So you could have given up to 10 % of your income to a scholarship branding organization and then gotten 100 % of that money back on your taxes, a dollar for dollar credit, which would have raised obviously billions and billions of dollars if scholarship branding organizations and say, hey, it costs you nothing. Give us the money, you get it back dollar for dollar on your taxes. This would have raised a massive amount of money for school choice scholarships and they would have been available in 50 states. So this was an incredible provision. The Senate, in the Senate the parliamentarian first rejected it completely and they took that whole section out and then somehow they convinced her to let them put it back in. But the new version limits it to $1,700 instead of 10 % of income. So it’s going to be a lot harder to raise that money if they’re going to get it in $1,700 chunks at a time.
And most bizarrely, she said it has to be a state opt-in. So now with the language that the Senate wrote, it’s not going to be in all 50 states. It’s going to be, they’re only going to be school choice scholarships in states where the governor says, yes, I want this in my state. you know, New York and Illinois and California and these places where the teachers unions are very proud, they won’t have the benefit of it.
And then you have to scratch your head and say, wait a second, how does requiring a state opt in make this more budgetary? Why was it not allowed when it was just across the board? now you make it opt in for states and that somehow makes it principally budgetary in nature. Some of these rulings totally defy logic. Nobody can explain to me why it becomes budgetary when you put a state up yet. But this is what the parliamentarian demanded.
I asked Phil about what passed that madeis acceptable to put up with all the crap in the OBBB: “So, let’s talk about the big beautiful bill and we can’t follow everything that’s in it because there’s just so much stuff in there ⁓ let’s hit on a couple of high points some things that you think are going to be economically beneficial.”
Tax Cuts
Well, I think the most important thing, and we shouldn’t lose sight of this, because the bill got very large, obviously, and there were lots of other sort of fights and flashpoints, but the most important thing is the most important thing, which is preventing a $4 trillion tax hike. And if this bill had not passed we were staring at the expiration of substantially all of the 2017 tax cuts come January 1st.
The Trump tax cuts were going to turn into a pumpkin on midnight on New Year’s Eve. And ⁓ all of the rates were going to go up. The standard deduction was going to be cut in half. The child credit was going to be cut in half. And the small business exclusion was going to go away. so not only would everyone’s taxes have gone up thousands of dollars, but for small businesses, all non-corporate businesses in particular, they were gonna see their rate go from 29.6 to 39.6. So we were looking at a really massive tax hike that would have hammered the economy and stopping that was the most important thing.
And of course, everything else came on board ⁓ It’s not just the tax bill either, of course. We’ve got all the border enforcements in there, the defenses in there. We’ve got substantially all of the president’s domestic agenda now in this bill. But to me, the most important thing was canceling that tax hike. And also on the ⁓ business side, both corporate and non-corporate, there were some things that had already expired. And so we were already into year three of the phase out of the bonus depreciation for software and equipment. so businesss, they were sitting on a lot of capital because if you invest, you were only able to write off 40 % of this year, the rest you had to take a lengthy depreciation schedule over many years. Now this bill restores 100 % bonus depreciation, full expensing, for software and equipment and research and development. And that is going to unleash a lot of investment, which is going to raise productivity and raise wages.
Remember when this was first put in and, you know, there’s long with the corporate cut and the other things in 2017, we saw the biggest increase in real income that we’d seen for very long time. think real income growth in Trump’s first three years was something like $6,000 for the median household. That was more than we had had in the whole century to that point. And so, you know, it’s easy to remember the disaster of Trump’s last year of his first term when he put Fauci and Birx in charge and they shut down the whole country. But the agenda was working really, really well before that. And one of the key ingredients of that, along with the deregulation, was the tax cuts and a lot of them, you know, were set to expire at the end of this year. On the business side, some of them had already largely expired because we were already well into that phase out on expensing. So bringing back 100 percent bonus depreciation, canceling all those tax hikes at the end of this year. That was the most important thing.
How about spending?
Now, on the spending side, it’s obviously a bit more of a mixed bag. But they did substantially reverse this explosion of Medicaid spending that we had under Biden and Medicaid under Biden was up 50%. It was, they ended eligibility checks. And so we had millions and millions of people who were on Medicaid who should not have been, you know, people who maybe had an income drop during COVID or something and signed up and then they went back to work and their income went up and they just stayed on the rolls because they never checked eligibility. had California and New York massively exploiting the laxness of federal Medicaid rules.
In fact, New York’s federal
Medicaid, the amount of federal money that New York Medicaid took in, it was up 21 % this year in one year. So things were just completely out of control. this is not everything that I would want in terms of Medicaid reform, but there are a couple of things that are going to make a huge difference. One is work requirements. And the other, which is not that nearly as much attention, but I think is probably the most important one, is they capped the payments that Medicaid makes in hospitals at the Medicare rates. …
You almost never undo spending. This is not a real cut, despite the headlines and everything you’re saying, because spending does go up every year in Medicaid. But it does bend that trajectory down substantially. If we can prevent future Congresses from altering that, it’ll get us after 10 years to about where we would have been without that huge increase under Biden. So that’s a pretty significant accomplishment.
Ending Green Subsidies
And, you know, I think on the green energy credits, which was the other big piece of this, the other big back and forth, we ended up in a pretty decent place because there is language in here that in order to get the subsidies, the project has to be in service by the end of 2017. They did punch a bit of a loophole in this that if it’s under construction before that, they get a four-year extension for getting it in service. Now, I’ve been told that the Trump IRS is going to fix the definition of under construction because we’ve been living under this fake definition that Obama’s IRS made up. I don’t know if you remember this, but Obama’s IRS, Steve, said that you don’t have to actually have broken any physical ground to be under construction if you’ve expended 5 % of the total anticipated cost of a project that counts as under construction. so every project easily qualifies. You spend a little bit of money and you say, OK, we’re under construction. Then you go look and there’s no physical construction of any kind and it didn’t matter. They were under construction. So a lot of conservatives, when this language was put back in the Senate bill, thought we need to send this back to the Senate. This is going to gut this. I think the Trump administration is going to be able to fix that because they’re going to say, hey, under construction actually means under construction and they should win in court because the previous definition was never a statute. It was something that Obama made up and it’s kind of the opposite of what the words actually mean.
Health Freedom
The House had very good HSA expansion provisions, which came out completely. Then they put some of them back in late in this. HSAs will now be able to pay for direct primary care, which was previously prohibited. And ⁓ people who were in exchange plans, bronze and catastrophic, will be allowed to have HSAs, which, you know, it never made sense to me that they couldn’t because the deductibles in those plans are higher than the deductibles in quote, high deductible health plans, which qualified for HSAs. So that was a nice little fix.
Buying Votes
By the way, hospital prices have gone up more than any other price in our economy, more than college
tuition. It’s almost a straight vertical line because we keep throwing so much money at the hospitals. And ⁓ when they faced the prospect of not being able to charge two and three hundred percent of Medicare rates for Medicaid patients, they went crazy and they said, my God, this is going to kill rural hospitals. It’s going to be a disaster. And so the Senate actually put in a $50 billion bailout fund for rural hospitals just to stop this talking point. By the way, 98 % of hospital spending goes to suburban and urban hospital systems. Rural hospitals are getting 2 % of federal hospital spending and yet they were pushed forward, they were the front, they were the happy face of the hospital industry. And they said, my God, this is gonna hurt rural hospitals if you don’t have this massive increase that happened under Biden made permanent.
The calculation the Senate used was let’s just bail them out directly. That’ll be cheaper than continuing on the path we’re on. And so the rural hospitals are gonna have ⁓ a massive windfall under this, which I worry about. It will flow through most like problematic ways. So that remains to be seen. how you can non-wastefully spend $50 billion on rural hospitals, I’m not quite sure. But they did that to get Josh Hawley’s vote from Missouri. And I thought they were going get Tom Tillis’ vote from North Carolina based on that. But he said, I’m going to retire and I’m going to vote no. And I hate President Trump and whatever it was.
And so that meant they needed Lisa Murkowski. And Lisa Murkowski, can’t blame her for being what she is. She is an old time, sort of reasonably corrupt, if you want my vote, here’s my list of demands, my ransom list, you will have to pay for my vote. And she gave him this list that was like, you know…special tax giveaways for Alaskan native whaling boat captains and a bunch of other nonsense.
And most pathetically, she wanted her state to be exempt from work requirements for food stamps and Medicaid. And then it’s like, I thought Republicans knew that these work requirements benefit the people who are on welfare programs, because it gives them an incentive to move off those programs and onto the ladder of economic opportunity. I didn’t think that they thought an exemption was something great to fight for as a win. It’s like you’re hurting your own constituents by doing that. But that’s that was one of her demands.
Adding to the National Debt.
Yeah, it’s a tough one because they did not nearly return to like the pre-COVID spending trajectory, which is what people like Ron Johnson were talking about. And, know, we have this, this historical pattern where you have these big ratchets up in the size of government during crises, usually wars, but a pandemic works too. And then you don’t really come back to where you were before. You have this ratchet, you go up a lot and then you come down maybe halfway and then you just keep growing from there. And there was a lot of hope that we could make it different this time, that because of the political alignment that maybe we could undo all of the COVID bulge and obviously they failed to do that. ⁓ if you kind of look at the deficit projections, the official scores and the unofficial scores, they’ll tell you that this is a big increase in deficits.
Now, in order to make that claim, they have to compare it to a world where all the tax cuts expire and you get this four trillion dollar increase in revenue from all of the tax cuts expiring. Now most people don’t think about it that way. If your tax rates have been what they’ve been for the last seven years you don’t think about them being the same next year as a tax cut. You think about them going up as a tax hike. I so the sort of the official sort of scoring methodology is kind of the opposite of the way most people think about this. And so you know if you think about it in terms of you know assume that this tax wasn’t going to happen. This is a pretty significant deficit reducer compared to the world where the taxes just continue, but you don’t get any of the spending reforms.
And so depending on how you think about it, sort of which baseline you use, this might be a huge increase in deficits or it might be a fairly substantial decrease in deficits. And I think that unless you were willing to consider a massive, massive tax, like it’s probably right to think of it as a decrease because of the reforms that we have on the spending side. Now, all of that said, we still have an unsustainable debt trajectory, right? And the hope is that by having good pro-growth tax policy, by having a little bit of discipline on spending, by having a lot ofvderegulation and energy production, we can get that growth trajectory up, that GDP trajectory up. And that is the biggest variable in the debt outlook by far.
And one of the reasons that CBO projects that mountain of debt zooming up and wiping us all out is they’ve got a growth assumption of about 1.7 % GDP growth on a long-term basis. Now, if we can get it to 3%, the whole debt problem goes away. You pretty quickly get into surplus and start retiring debt in a couple of decades, if you could prevent government spending from growing with it, which is very hard, either way.
…But I do think that having solid pro-growth tax policy and especially those incentives for investment that I talked about is one of the necessary prerequisites having stronger economic growth.
There are a bunch of other things you need to do also. You need to have a stable monetary supply. The dollar needs to retain its value. can’t have another bolt of inflation again. You’ve got to have at least some discipline on spending, and you’ve got to have a much better regulatory environment. Trump’s working very hard on that now.
The entire interview lasted nearly 40 minutes, and I always enjoy speaking with Phil. My apologies to him and you for missing out on the other content, the back-and-forth, and so on. Oh, and having to read it when it would have been a lot easier to listen.
Overall, the OBBB has so many wins that the downsides are the price of admission and things we can still address down the road, perhaps by other means. And the tax and regulatory changes are huge wins for regular Americans, small businesses, and economic growth potential.
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