'Big, Beautiful' Medicaid Cuts, Explained

The Medicaid cuts are a scam to get the tax cuts passed - including those which extend Estate Tax Rules currently in force. When the GOP loses Congress, the cuts will be stopped. The most onerous cuts passed in 2017 were permanent - and were likely bipartisan behind the scenes - those cuts being the ones that cut corporate income tax rates and introduced matching pass through rates and qualified dividend rates to match - which is pretty much a good idea. Biden wanted to add a 5% increase to the bad cuts but did not get it done - so we really are in the Trump economy and had been through the entire Biden Administration. Biden and Harris could not say this because they wanted to claim credit for the strong Dow - which inflated in price (more money, same goods in Blue Chip sector with the addition of a lot of junk (Bitcoin and Mortgage Backed Securities built into index funds). 

Balancing the budget without raising taxes on business must wait for more basic tax reform. The real cost to the poor is because of tariffs, which are about the same as a value added tax with the kind of exemptions you would expect legislators to throw in rather than have a broad based tax. Tariffs are necessary to at least match VATs that are zero rated at export - with the understanding that other national VATs add back taxation by the importing nation. To an extent, state sales taxes do that - although at lower rates - and businesses who charge sales taxes can deduct them from their Gross Income. Families are partially held harmless by the increase in the Child Credit by $500 per year, although this works out to only $41.66 per month per child. Not renewing the cuts does not decrease tariffs and reduces the Child Credit to $1000 per year per child - which is an increase of 124.98 per month in taxes - although abandoning the Trump cuts would bring back the child tax exemption of a bit more than $3000 per child per year - which effectively still puts a lot of people off the tax roles who are poor. Harris would have increased the child credit to about what the Big Beautiful Bill goes to, with a $500 sweetener for newborns. Child tax credit amounts are one of those bipartisan measures that need to be doubled and indexed for inflation.

The GOP should also give low wage workers a raise - Trump may be embarrassed into doing that if the Pope asks him to. To make it back to Clinton era levels, it would have to be $12 per hour. Biden should have passed this in his first year. So should have Obama. If hours are cut to 7 per day for a four day week more people would get jobs and to keep the same wage level, the rate would need to be $14.50. In some states, it already is. Only GOP states screw over their own people, largely due to White Supremacist ideology which assumes that only people of color have these jobs.

Running a deficit is essential to keep capitalism active because this keeps interest payments flowing to investors who hold bonds directly or through mutual funds (77% of which is owned by the top 10% - who own 54% of pension, retirement account and bank assets and deposits). For capitalism to grow, the deficit must grow. $300 Billion per year over ten years may not even pay the interest, depending on what the Fed does with interest rates. We actually need a much higher deficit - and will get one in all reality since most cuts will not occur as sold. The top tax rate under Trump is 37%, which is a bit less than half of the difference between the Bush rate of 35% and the Clinton and Obama rates of 39.6%. This rate applies to ordinary dividends, wages and short term capital gains (net for the year). Only celebrities pay these rates - from CEOs to sports and entertainment stars. The vast majority of income for the top 0.1% (the real wealthy - the rest of the top 1% work for a living as doctors and lawyers and such) get their income from qualified dividends and capital gains - while dividends and pass throughs take money from workers, capital gains do not - they are essentially gambling winnings.  Again, these rates need to go up as part of permanent law as they do not run out. The actual capital gains rate (before SM taxes funding Obamacare subsidies - which is 3.8% on non-wage income over $400,000 - Biden increased the threshold from the $200,000 in the original law) is 20% and has been since Bush 43. Obama did not change that rate - even though this is one of the main ways that the wealthy make money.

Business and capital gains rates (including dividends) should be 26% or so and be bipartisan and permanent. This will be enough to allow manageable increases to the deficit. The current rates allow the creation of junk in the stock markets. A 19.5% VAT or tariff is necessary to reduce the budget deficit (or less if carbon taxes are enacted and made visible on invoices) - but only if the child tax credit and minimum wage are increased as above, which would automatically increase social security payouts to enough that seniors and the disabled don't need additional income from work or other government benefits. You would know this if you followed by channel and read my fiscalequity.blogspot.com page, which contains my comments to the revenue committees through The Center for Fiscal Equity.