Republicans are exposing fault lines within their own party over a sprawling tax-cut bill, which passed the House and is now up for review in the U.S. Senate.
The party increasingly relies on working-class voters to win elections.
Yet the One Big Beautiful Bill Act, judging by what the House of Representatives has passed and what the Senate is now considering, showers direct tax benefits much more on wealthy Americans than on poor or middle-class taxpayers.
Why We Wrote This
As the Senate takes up the big tax-cut bill from the House, key sticking points revolve around both fiscal responsibility and fairness – whether Republicans are favoring rich people over the party’s working-class base.
The questions of fairness, rising now in the Senate, also center in part on spending cuts to pay for extending low tax rates that would otherwise expire. Under the House bill, as many as 11 million lower-income Americans could lose Medicaid health insurance over the next decade, due to changes such as a work requirement for able-bodied adults without dependents. Senate Republicans are weighing even larger cuts to Medicaid spending.
Who does the current GOP stand up for these days? The answer from congressional Republicans could shape not only the final legislation but also the party’s ballot-box performance when midterm elections roll around next year.
Tax legislation often requires difficult compromises to paper over divisions within the ruling party. The picture looks even more divided and complicated this year because of market jitters over U.S. debt levels and the uncertainties surrounding President Donald Trump’s tariffs.
“What Trump is trying to do is thread this needle,” says Howard Gleckman, a senior fellow at the Tax Policy Center in Washington. “He’s not only trying to maintain support among blue-collar people,” but also hoping to take care of the party’s wealthier, more traditional base.
Republican rumblings over spending
So far, polls suggest that Mr. Trump’s varied supporters are generally sticking with him, although with signs of clear concern about the potential pocketbook effect of tariffs on consumer prices.
But some GOP voices of discontent are growing louder. And they point to deeper challenges, what many see as moral questions, that American lawmakers face about long-term trends in federal spending.
Mr. Trump’s very public spat with billionaire Elon Musk, until recently the nominal head of Mr. Trump’s effort to slash the size of government, underscores a broader split within the party. Federal spending is clearly out of control, deficit hawks say, citing runaway national debt.
But Republican congressional leaders, worried about the political fallout, do not appear ready to rein that in. Instead, in the House bill, they are proposing to keep the large and expensive 2017 tax cuts passed during Mr. Trump’s first term and add further tax cuts.
That would add $2.4 trillion in deficits over the next decade, the Congressional Budget Office estimates. Many analysts say that the price tag would be much higher once congressional gimmicks, aimed at disguising the cost, are stripped out.
The cost would be $5.3 trillion, estimates Jessica Riedl, a senior fellow at the conservative Manhattan Institute, in an op-ed for MSNBC. Despite the tripling of deficits since President Trump’s 2017 tax cuts, “Republicans have responded by passing the most expensive legislation since the 1960s,” she writes.
“This is immoral,” GOP Sen. Ron Johnson of Wisconsin told CNBC Wednesday.
Debt limit woes, or tax breaks
The House bill also boosts Congress’ self-imposed federal debt limit by a whopping $5 trillion. “I cannot support a budget bill that includes the largest numerical debt limit increase in American history,” Republican Sen. Rand Paul of Kentucky wrote in a June 4 op-ed for the Courier Journal in Louisville.
Mindful of their narrow majority and midterm elections next year, House leaders mostly avoided tough cuts in the bill and instead offered a number of tax breaks.
Many are aimed at average Americans, including provisions that exempt income from tips and overtime from taxation, and make interest on car loans tax-deductible for lower- and middle-income taxpayers. The House bill modestly expands the child tax credit and creates new “Trump Accounts” for newborns.
For upper-income earners in high-tax states, the bill includes a hefty increase in the cap on SALT (state and local tax) deductions. Instead of today’s $10,000 “SALT cap” deduction, taxpayers earning less than $500,000 would be able to deduct up to $40,000 in state and local taxes from their federal return.
That could be a huge help to Republican representatives in states like California and New York, especially those facing a tough reelection next year. But Senate Republicans aren’t on board, and many tax-cut supporters see it as a giveaway to rich people.
“That’s something that should be revisited” by the Senate, says Demian Brady, vice president of research for the National Taxpayers Union Foundation, whose parent organization advocates for lower taxes and smaller government.
“If you were able to lower or even eliminate the SALT cap deduction, you’d be able to finance a lot more broad-based tax relief,” he says.
What’s “fair”?
There’s a deeper fairness problem. Since President Ronald Reagan’s tax cuts in the 1980s, major tax-cut packages have almost always helped rich people and hurt poor people. Or if poor people have been helped, rich people have fared even better.
Even Democratic President Barack Obama’s 2012 package, which did rein in tax benefits for the top 1% of high earners, still favored the top 10% overall, says David Kamin, a law professor at New York University. They got about 40% of the package’s total benefits. In the current House bill, according to an analysis by The Budget Lab at Yale, the top 10% would get 60% of the net benefits, he adds.
While that might not seem fair, there’s a certain logic to it. A tax cut typically offers the highest benefits to those who pay the most taxes. And gaps by income level are large.
“The rich benefit ‘disproportionately’ because income inequality is so high,” writes Emmanuel Saez, an economist at the University of California, Berkeley, in an email. And four decades of tax cuts have, if anything, helped make that income gap even bigger.
It doesn’t have to be that way, he adds, pointing to an example – the idea of making the first $30,000 of Social Security benefits go untaxed – as a way to help lower-income recipients. And over time, Congress has made moves such as expanding the earned income tax credit that have made the federal tax code more progressive.
In 1980, the top 1% of earners paid 19% of all income taxes; in 2022, the latest figures available, they were paying 40% of all taxes, points out Mr. Brady of the National Taxpayers Union Foundation.
Cutting costs and the cost of cuts
Eventually, Americans will have to reduce deficits, and the House bill does suggest how Republicans might pay for that, says Mr. Kamin of New York University. “And that involves considerable losses to some of the most vulnerable families.”
The legislation cuts some $600 billion from Medicaid and $230 billion from the food assistance program known as SNAP over a decade by tightening eligibility for the programs. To budget-cutters, such cuts make sense.
“There is a lot of waste within Medicaid that needs to be gotten rid of,” says Mr. Brady. “You can use Medicaid funds for gym memberships and music lessons, and it has a pretty high rate of improper payments.”
But Republican senators in some rural states, such as Susan Collins (Maine), Josh Hawley (Missouri), and Lisa Murkowski (Alaska), worry that such big cuts over the decade could push between 7.6 million and 10.9 million Americans off the rolls, including many of their constituents.
“The Republican Party is in a funny place right now,” says Alan Auerbach, director of the Burch Center for Tax Policy and Public Finance at the University of California, Berkeley. “There’s people like Josh Hawley who want to get rid of the Medicaid cuts. And then there’s people, like Ron Johnson and Rand Paul, who want deeper spending cuts. And I don’t know how they’re going to square that circle.”
Other issues are also straining the coalition.
Where the House bill would temporarily expand the child tax credit from $2,000 to $2,500, some in the Senate want to make the expansion smaller, and others bigger. The elimination of electric vehicle and other green-energy tax credits pits GOP senators from oil-producing states against others with a growing green-energy base.
Such divisions are not unusual when presidents try to push through big tax bills. This year is complicated by President Trump’s push for tariffs, which could generate additional tax revenues but also offset the economic boost of the tax cuts by raising prices and increasing inflation.
Much remains uncertain about what rates the tariffs will settle out at and whether they’re even legal. Two federal courts have ruled that the bulk of the tariffs are illegal, and the U.S. Supreme Court has yet to weigh in. Budget-cutters are wary about creating a fixed 10-year tax regime by relying on volatile and untested tariff revenues to fund it.
While there are twists and turns ahead, many analysts predict the Senate will pass a tax-cut package roughly along the lines of the House bill. “There’s going to be sufficient pressure from the president,” says Dr. Auerbach, “that most Republican senators are going to find it hard to vote against the legislation.”
