US President Donald Trump on Friday signed into law his highly anticipated tax breaks and spending cuts package also known as ‘Big Beautiful Bill.’
The law which saw a fierce debate in both house is said to decide Trump’s political future as a president. Even certain hardcore Republicans voted against the bill prompting US Vice President JD Vance to cast the tie vote.
Medicaid Overhaul in Big Beautiful Bill
Under the new law, people earning below $58,000 could lose access to crucial benefits such as Medicaid, ACA health insurance subsidies, SNAP, and student aid.
For those earning under $20,000, this could mean a loss of up to $885 or 5.4% of income while people with incomes between $20,000 and $58,000 may lose up to $1,090 or 2.3% of income. On the other hand, people earning between $58,000 and $105,000 could see a smaller loss of up to $45 or 0.1%.
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Able-bodied adults aged 19–64 without dependents must work or participate in approved activities for at least 80 hours per month to maintain Medicaid coverage after the end of 2025. Those earning above the federal poverty level would face higher medical costs, including $35 copays for certain visits.
Another sweeping change under ‘big Beautiful Bill’ is that states will now be required to verify Medicaid eligibility every six months. This change doubles the previous once-a-year schedule.
SNAP Cuts, SALT Deduction Changes Under Big Beautiful Bill
The legislation extends work requirements for food assistance to adults aged 55 to 64. A 2023 analysis indicated that a similar measure could have removed 3 to 3.5 million people from SNAP. States will now be responsible for helping fund these benefits, shifting costs from the federal government.
The cap on state and local tax (SALT) deductions will rise to $40,000 starting in 2025, benefiting individuals earning up to $500,000. This cap will increase by 1% annually to adjust for inflation but is set to revert to $10,000 in 2029.
Also, a revived tax loophole allows pass-through entities to deduct state and local taxes, effectively sidestepping the SALT cap. Adjustments to the alternative minimum tax (AMT) and these changes are projected to cost $325 billion over time.
New Car Loan Interest Deduction Under Big Beautiful Bill
The Big Beautiful Bill introduces a new deduction for car buyers, allowing up to $10,000 per year in car loan interest deductions for vehicles made in the US. This benefit phases out for individuals earning between $100,000 and $150,000 and for joint filers earning between $200,000 and $250,000.
Individuals aged 65 and older will receive an additional $6,000 tax deduction through 2028. This benefit gradually phases out for seniors with incomes starting at $75,000.
Big Beautiful Bill: Child Tax Credit, Child Savings Accounts and Estate Tax Changes
The estate tax exemption increases to $15 million, preventing it from reverting to just over $7 million in 2025. The child tax credit rises from $2,000 to $2,200, with adjustments for inflation beginning in 2026.
Children under age 8 will receive $1,000 initial deposits in special savings accounts. Families can contribute up to $5,000 per year tax-free until the child turns 18, with access to the funds after that age.
Private colleges with over 3,000 tuition-paying students face new taxes on their endowments. Endowments between $500,000 and $750,000 per student will be taxed at 1.4%, those between $750,000 and $2 million at 4%, and endowments over $2 million per student will incur an 8% tax.
Big Beautiful Bill Increases Defense Spending
Defense spending will rise by $153 billion. This includes $25 billion for the “Golden Dome” missile defense system and $7.5 billion for improving housing, healthcare, childcare, and education for military families.
The legislation allocates an additional $150 billion for border security which includes $50 billion for completing the southern border wall, $45 billion for expanding detention centers, $8 billion to hire more immigration officers, and $27 billion for deportation efforts.
Analysts have criticized the bill saying that the wealthiest 20% of Americans will receive approximately 65% of the tax benefits, while the remaining 80% of US citizens will get only 35%. benefits. Critics also argue that high-income families in the top 5% will experience the most significant tax reductions, with average cuts of 3% of their after-tax income.
