On July 3, the US House of Representatives passed President Donald Trump’s signature tax cuts and spending packages.
The bill combines tax cuts, hiking spending on defense and border security, and reducing social security nets.
Hakeem Jeffries, a leader in the Democratic minority, warned that the bill would “harm everyday Americans and reward billionaires with massive tax cuts.”
Trump’s former ally billionaire, billionaire Elon Musk, has publicly opposed the bill, claiming it will inflate the spending and the country’s already unparalleled debt.
Trump is expected to sign the bill on Friday, July 4th (US Independence Day) at 4pm ET.
Here’s what you’ll need: And who will the bill affect:
How did the taxes get reduced?
The bill’s main goal was to extend Trump’s first term tax cuts.
In 2017, Trump signed the Tax Cuts and Employment Act, lowering taxes, increasing standard deductions for all taxpayers, and benefiting mainly high-income earners.
More than a third of the total cuts went to households with incomes of more than $460,000.
The top 1% (approximately 2.4 million) received an average tax cut of around $61,090 by 2025. In contrast, the mid-60% of earners (78 million) saw a cut in the $380-$1,800 range.
These tax credits were set to expire this year, but the new bill made them permanent. It also adds some cuts Trump has promised in his latest campaign.
For example, there are changes to US tax laws known as state and local tax credits.
This allows taxpayers to deduct certain local taxes (such as property taxes) from their federal tax returns.
Currently, people can only deduct up to $10,000 of these taxes. The new bill will raise its cap from $10,000 to $40,000 for five years.
Taxpayers will also be allowed to deduct tips and income from overtime until 2028, and will be allowed to pay interest on loans to purchase cars made in the US from this year until 2028.
Elsewhere, real estate tax exemptions increase to $15 million for individuals and $30 million for married couples.
Overall, the law includes a tax cut of around $4.5 trillion.
How much is the reduction in social welfare?
To offset the costs of tax cuts, Republicans plan to reduce Medicaid and food assistance programs for low-income families.
Their stated goal was to concentrate these programs on specific groups (mainly pregnant women, people with disabilities, children), but reduced what they thought was useless, including restricting access to immigration.
Currently, more than 71 million people rely on Medicaid, the government’s health insurance program.
According to the Congressional Budget Office (CBO), the bill will leave another 17 million Americans without health compensation over the next decade.
Medicaid helps Americans suffering from health, but the Supplementary Nutrition Assistance Program (SNAP) helps poor people buy groceries.
Currently, around 40 million Americans are receiving benefits through SNAP, also known as food stamps.
CBO calculates that 4.7 million SNAP participants will lose from 2025 to 2034 due to program cuts.
Medicaid and snap changes could be permanent clauses and no sunset clauses are attached to them.
A recent White House memo pointed to more than $1 trillion in welfare cuts from the new bill. This is the biggest spending cut in the US safety net in modern history.
Do you have new money for national security?
The bill puts aside the nearly $350 billion spread over several years for Trump’s borders and national security plans. This includes:
$460 billion on the US Mexican border wall is part of a plan to carry out the largest deportation effort in US history, $45 billion to fund 100,000 beds in immigration detention centers, and to hire an additional 10,000 immigration and customs enforcement (ICE) agents by 2029.
Is clean energy affected?
Republicans have rolled back tax incentives that support clean energy projects with renewable energy like solar and wind, and instead give coal and oil companies tax deductions.
These “green” tax credits are part of former President Joe Biden’s groundbreaking inflation reduction laws aimed at tackling climate change and reducing healthcare costs.
Under current law, tax cuts for those who purchase new or used electric vehicles, not the end of 2032, will expire on September 30th this year.
How will the bill affect the US debt profile?
The law is up $5 trillion from the current $36.2 trillion (corresponding to 122% of GDP), exceeding the $4 trillion outlined in the version passed by the House in May.
Washington cannot borrow more than the stated debt cap. However, since 1960, Congress has raised, suspended or changed the terms of its debt cap 78 times, promoting more leverage and undermining the long-term financial stability of the United States.
In his first term, Trump oversaw a roughly $8 trillion increase in federal debt, which had surged due to 2017 tax cuts and emergency spending approved by Congress during the Covid-19 pandemic.
Debt as a percentage of GDP was already higher than last year outside World War II, the financial crisis of 2008, or the Covid-19 pandemic. The deficit concerns helped Moody downgrade US credit scores in May.
The White House argues that the new tax bill will cut the projected deficit over the next decade by more than $1.4 trillion. But economists on both sides of the aisle are fighting for it.
In fact, according to the Nonpartisan Committee on Responsible Federal Budget, interest payments on national debt would increase to $2 trillion per year by 2034, congesting spending on other goods and services.
How did the House vote for the bill?
The U.S. House of Representatives voted on Thursday with a margin of 218 to 214 in support of the bill.
All 212 Democrats in the House opposed the bill. They were joined by Kentucky leader Thomas Massey and Pennsylvania’s Brian Fitzpatrick, defeating the Republican majority.
On July 1, the Senate passed the bill slightly with 51-50 votes, winning the decision vote voted by Vice President J.D. Vance.
Who will benefit the most?
The wealthier taxpayers are more likely to get more from the bill than low-income Americans, according to Yale University’s Budget Institute.
They estimate that people in the lowest income group will see their income drop by 2.5%, primarily due to snaps and Medicaid cuts, while the best earners will see their income rise by 2.2%.
