Republicans Unveil Sweeping Tax Bill, and Billions in Medicaid Cuts

Rep. Jason Smith, chair of the House Ways and Means Committee
Sipa USA/Reuters
By Yuval Rosenberg and Michael Rainey

Happy Monday! This is bound to be a wild week, as House Republicans scramble to finalize key elements of their big bill containing much of President Trump's domestic agenda. Trump is heading to Saudi Arabia, Qatar and the United Arab Emirates, but before he left, he announced both a temporary tariff truce with China and an executive order aimed at lowering drug prices. Here's the latest.

House Republicans Unveil Sweeping Tax Bill and Billions in Medicaid Cuts

House Republicans on Monday released a multitrillion-dollar tax package that would make permanent many of the provisions in the 2017 tax bill while delivering on some of President Donald Trump's campaign pledges - including no taxes on tips and overtime pay - with the goal of getting the legislation to Trump's desk by July 4.

Three key committees - Ways and Means, Energy and Commerce, and Agriculture - will mark up their portions of the legislation starting Tuesday, and GOP leaders hope to hold a floor vote on the entire package next week, ahead of a Memorial Day deadline.

Analysts say the cost of the tax plan is at least $4.9 trillion, including more than $4 trillion in tax cuts over a decade, while reducing spending by roughly $1.5 trillion, including big cuts in Medicaid. The bill would also raise the debt limit by $4 trillion - an important component that Treasury Secretary Scott Bessent has requested to be done by mid-July.

Some notable details from what Trump has called his "one big, beautiful bill":

  • The reduction in the individual tax rates in 2017 would become permanent. There is no increase in the top tax bracket to 39.6%, an idea suggested by Trump last week, so the top rate would remain at 37%.
  • In addition to eliminating income taxes on tips and overtime pay, the bill would make the interest on car loans deductible, but only for American-made vehicles.
  • Taxes on Social Security payments would remain, but the bill would provide an additional $4,000 tax deduction for seniors.
  • The cap on the state and local tax (SALT) deduction would be raised to $30,000, up from the current $10,000, but limited to individuals earning less than $200,000 and couples earning less than $400,000. This falls short of demands by Republican lawmakers from high-tax states for a much higher cap. According to reports Monday, those lawmakers are looking for a cap closer to $62,000 for single filers and $124,000 for couples.
  • Endowments at private universities could see taxes as high as 21% on endowment income.
  • Tax breaks associated with renewable energy would be scaled back, including the elimination of the $7,500 electric car tax credit by the end of 2026.
  • The child tax credit would rise from $2,000 to $2,500 through 2028.
  • The deduction for pass-through businesses would rise from 20% to 23%.

Medicaid in the crosshairs: House Republicans on Sunday night also released their proposed changes to Medicaid ahead of the scheduled markup on Tuesday.

The GOP plan would introduce new work requirements of 80 hours per month for able-bodied adults without children. Income verifications would become more rigorous, and beneficiaries would be required to verify their eligibility twice a year rather than once. And states would be penalized for providing health care to undocumented immigrants. The plan does not include two of the most controversial proposals Republicans had considered: per-capita caps on Medicaid outlays and lower federal matching funds for state costs of covering the Medicaid enrollees who gained access to the program under the Affordable Care Act.

The Energy and Commerce Committee was instructed to come up with $880 billion in spending cuts over 10 years, and according to a preliminary analysis by the Congressional Budget Office, the committee exceeded its instructions, proposing $912 billion in cuts, with at least $715 billion coming from health care, mostly Medicaid. The CBO analysis also found that the GOP plan would reduce the number of people with health insurance by at least 8.6 million in 2034.

Some Republicans have warned against passing a bill that provides huge tax cuts that benefit the wealthy while taking health care from millions of Americans. On Monday, Sen. Josh Hawley published an editorial along those lines, saying the idea of cutting health care to pay for tax cuts is "morally wrong and politically suicidal."

"Mr. Trump has promised working-class tax cuts and protection for working-class social insurance, such as Medicaid," Hawley wrote in The New York Times. "But now a noisy contingent of corporatist Republicans - call it the party's Wall Street wing - is urging Congress to ignore all that and get back to the old-time religion: corporate giveaways, preferences for capital and deep cuts to social insurance."

Perhaps providing a glimpse of the Republican messaging strategy on the issue, at least in the House, Energy and Commerce Chair Brett Guthrie addressed those concerns in the pages of The Wall Street Journal, arguing that changes to Medicaid should not be seen as cuts but rather as a way to strengthen the program for those who deserve it.

"Undoubtedly, Democrats will use this as an opportunity to engage in fear-mongering and misrepresent our bill as an attack on Medicaid," Guthrie wrote. "In reality, it preserves and strengthens Medicaid for children, mothers, people with disabilities and the elderly-for whom the program was designed."

Democrats did indeed blast the plan, warning that Americans will lose coverage, premiums will rise and hospitals will close. "This is not trimming fat from around the edges, it's cutting to the bone," said Rep. Frank Pallone, the top Democrat on the Energy and Commerce Committee. "The overwhelming majority of the savings in this bill will come from taking health care away from millions of Americans. Nowhere in the bill are they cutting 'waste, fraud, and abuse'-they're cutting people's health care and using that money to give tax breaks to billionaires."

Hospital groups also panned the proposal. "These proposed cuts will not make the Medicaid program work better for the 72 million Americans who rely on it," Rick Pollack, president and CEO of the American Hospital Association, said in a statement. "Instead, it will lead to millions of hardworking Americans losing access to health care and many of our nation's hospitals struggling to maintain services and stay open for their communities. We urge Congress to reject efforts to dismantle this vital program."

US and China Agree to Slash Tariffs for 90 Days

The U.S. and China have agreed to sharply reduce their aggressive tariffs for 90 days as they seek ways to defuse the burgeoning trade war sparked by President Donald Trump.

Following negotiations in Geneva, Switzerland, this past weekend, U.S. Trade Representative Jamieson Greer said the U.S. would drop its 145% tariff on most Chinese goods to 30% - a 10% base tariff plus 20% intended to pressure China to crack down on fentanyl-related exports - while China has agreed to reduce its 125% tariff on most U.S. goods to 10%. The changes will take effect on Wednesday.

In a joint statement, China and the U.S. said the pause was agreed to in a "spirit of mutual opening, continued communication, cooperation, and mutual respect."

In a separate statement, China's Ministry of Commerce said the agreement is an "important first step," while urging the U.S. to "completely rectify the mistake of unilateral tariffs [and] work together to inject more certainty and stability into the global economy."

No "generalized decoupling": Treasury Secretary Scott Bessent said Monday that the U.S. isn't looking for a complete break from one of its largest trade partners, but instead a reordering of its relationship, with the goal of boosting domestic production of key goods. "We do not want a generalized decoupling from China," he told CNBC. "But what we do want is a decoupling for strategic necessities, which we were unable to obtain during Covid and we realized that efficient supply chains were not resilient supply chains."

"We are going to create our own steel," Bessent added. "[Tariffs] protect our steel industry. They work on critical medicines, on semiconductors."

At the same time, the U.S. wants to continue to trade with China, but on a "more balanced" basis, Bessent said.

Initial reactions: Stocks surged on the news as investors celebrated even a temporary reprieve from the trade war Trump intensified on "Liberation Day" in early April, with the S&P 500 soaring 3.2% and the Dow Jones Industrial Index rising 2.8%.

"This is a substantial de-escalation," Mark Williams, chief Asia economist at Capital Economics, told the Associated Press. But the threat has not been totally defused, he warned, and "there is no guarantee that the 90-day truce will give way to a lasting ceasefire."

Harvard University economist Dani Rodrik said he was glad the two countries stepped back from "a needless trade war," but the 30% tariff on Chinese imports will still hurt U.S. consumers, for little gain. "Trump has obtained absolutely nothing from China for all the chaos he generated. Zilch," Rodrik wrote on social media.

Some analysts advised caution, given the complexity of the tax ahead for negotiators. "The US-China trade negotiations are going to be like a rollercoaster," Scott Kennedy, a China expert at CSIS, told the Financial Times. "Markets can breathe a temporary sigh of relief but we're nowhere near out of the woods."

Trump Signs Executive Order Seeking Lower Drug Prices

President Trump signed a sweeping executive order on Monday aimed at lowering prescription drug prices and "equalizing" costs here with those in other wealthy nations.

"The United States has less than five percent of the world's population and yet funds around three quarters of global pharmaceutical profits," Trump's order says. "This egregious imbalance is orchestrated through a purposeful scheme in which drug manufacturers deeply discount their products to access foreign markets, and subsidize that decrease through enormously high prices in the United States."

The president's plan calls for drugmakers to provide Americans with the "most-favored nation price" for their products - that is, it would push companies to charge the same prices domestically as they do in other developed countries. The order also aims to drive foreign drug prices higher through Trump's trade policy. If drug companies don't voluntarily work with the government to lower U.S. prices, they could face the threat of additional regulations, greater imports from other countries or legal action.

Still, the executive order has no teeth, citing no legal authority that would require drugmakers to act, and shares of drugmakers rose on Monday. "It was something of a win for the pharmaceutical industry, which had been bracing for a policy that would be much more damaging to its interests," said The New York Times' Margot Sanger-Katz and Rebecca Robbins.

Spreading the blame: In a rambling, hour-long morning news conference, Trump took some swipes at drug companies even as he said his criticisms were aimed more at foreign countries that push down prices. "I'm not knocking the drug companies. I'm really more knocking the countries," he said, before noting that the drug industry lobby is among the most powerful in Washington.

"Starting today, the United States will no longer subsidize the healthcare of foreign countries, which is what we were doing," Trump claimed. "We'll no longer tolerate profiteering and price gouging from Big Pharma," though he quickly reiterated that his complaint was really with foreign countries that set prices.

Trump said he thought drugmakers wouldn't be hurt much by his plan. "I think the health care companies should make pretty much the same money - I really don't believe they should be affected very much, because it's just a redistribution of wealth," he said. "Europe's going to have to pay little bit more, the rest of the world is going to have to pay a little but more, and America is going to pay a lot less."

Trump also told reporters that he had urged congressional Republican leaders to factor in drug cost savings as they score the costs and savings of their budget reconciliation bill - even though his drug-pricing order isn't reflected in the package. The White House reportedly had pressed for a "most-favored nation" provision in the GOP bill, but congressional Republicans rejected the idea.

Resistance ahead: The drug industry is expected to fight Trump's plan. The Pharmaceutical Research and Manufacturers of America (PhRMA), the industry's main lobbying group, said Trump is right to try to use trade negotiations to force foreign countries to "pay their fair share" for medicines. But it warned that the Trump plan could undercut drug company investments in American and might increase reliance on China. It also pointed a finger at middlemen in the U.S. system, including pharmacy benefit managers (PBMs).

"The U.S. is the only country in the world that lets PBMs, insurers and hospitals take 50% of every dollar spent on medicines. The amount going to middlemen often exceeds the price in Europe. Giving this money directly to patients will lower their medicine costs and significantly reduce the gap with European prices," PhRMA President and CEO Stephen J. Ubl said in a statement. "Importing foreign prices from socialist countries would be a bad deal for American patients and workers."

The bottom line: This is an extraordinary move by a Republican president, even if it is more of a request than an order - but Trump sought to do something similar in his first term and saw his efforts stymied.

Quote of the Day: A Nice Gesture

"I think it's a great gesture from Qatar. I appreciate it very much. I would never be one to turn down that kind of an offer. I mean, I could be a stupid person say, 'No, we don't want a free, very expensive airplane.' But it was - I thought it was a great gesture."

President Trump, discussing an offer from the Royal family of Qatar to donate a $400 million luxury jetto the U.S. to be used as Air Force One. Although no final arrangement has been made, the plan involves Trump using the Qatari plane while he waits for a pair of long-delayed presidential 747s to be delivered by Boeing. When Trump's term ends, the Qatari plane would then be donated to Trump's presidential library.

Initial reports indicated that Trump would continue to use the plane after leaving office in 2029, but the president denied that, as well as the idea that the donation would amount to a personal gift. "You should be embarrassed asking that question," Trump said to a reporter who pressed him on the issue. "They're giving us a free jet. I could say, 'No, no, no, don't give us. I want to pay you a billion or $400 million, or whatever it is.' Or I could say, 'Thank you very much.'"

The potential donation, which would be one of the most valuable, if not the most valuable, gifts ever given to the U.S., has raised serious ethical and security concerns. The plane, which ABC News reports has been described as "a flying palace,"would need to be overhauled by a U.S. defense contractor; The Wall Street Journal reports that L3Harris has been commissioned to do the work, to be paid for by the U.S. Air Force.

With respect to ethics, Trump has been criticized from left, right and center. Decrying the "over-the-top kleptocracy" of the Trump administration, Sen. Bernie Sanders called the plan "farcically corrupt" and "blatantly unconstitutional," while former Council on Foreign Relations president Richard Haass said the administration's justifications for the donation don't pass "the seriousness test." On the right, conservative activist and Trump ally Lara Loomer said she hopes the reports are false. "This is really going to be such a stain on the admin if this is true," she said. "And I say that as someone who would take a bullet for Trump. I'm so disappointed."

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