Update 878: GOP Mods, Hawks Chicken Out on OBBB

July 21, 2025 | FDIC, Healthcare, Interest Rates, IRA, Jobs, Medicaid, OCC, One Big Beautiful Bill, Social Security, Tariffs, TCJA, The Fed, Trade, unemployment, Update | By

Update 878 – OBBB’s Parable of the Cave:

GOP Moderates, Hawks Chicken Out on Bill

Moments ago, the House passed Trump’s signature domestic economic legislation, the “One Big Beautiful Bill Act,” sending it to Trump’s desk in time for July 4. Trump achieves much of his domestic policy agenda, with his TCJA tax cuts extended, increased funding for his immigration agenda, and many of his promises partially fulfilled. Is it a pyrrhic win for the GOP? Moderates looking to rein in cuts to Medicaid and conservatives looking to rein in deficit spending both wound up backing down instead of standing up to Trump on these issues. But the public is not getting what it wanted, either, as polling, even from conservative outlets such as Fox News, shows that far more Americans oppose the bill than support it. 

The June jobs report released this morning shows that the labor market remains strong, with 147,000 jobs being added to the U.S. economy and the unemployment rate remaining low at 4.1 percent last month, though the Trump administration’s coming tariff policies loom over the economy. Federal banking regulators also moved forward with the administration’s deregulatory agenda, opting to weaken regulations for the largest U.S. banks. Ahead of the Liberation Day deadline next week, Trump announced a trade deal with Vietnam, and the U.S. and Canada are back at the negotiating table after a dramatic weekend. We cover these developments below. 

Good Independence Day weekends all…

Best,

Dana

Headline

Reconciliation: Sprawling, Unpopular Bill Nears Passage

Today, the House voted 218-214 to push H.R. 1, the “One Big Beautiful Bill Act” (OBBB), through the House and onto Trump’s desk for signing. Once signed, it will enact a sizable portion of Trump’s second-term economic agenda. Once signed, it would have huge ramifications, including for America’s fiscal health and healthcare access for millions of Americans.

Final Senate passage on Tuesday required Vice President JD Vance to cast the tiebreaker in a 51-50 vote. Senate Majority Leader John Thune (R-SD) pushed through the reconciliation bill after a month of intense debate over issues including Medicaid and SNAP cuts and the overall cost of the bill. Senators Susan Collins (R-ME), Rand Paul (R-KY), and Thom Tillis (R-NC) joined all Democrats in voting against the bill. 

Leadership received pushback from both the moderate and conservative wings of the GOP over the fiscal impact of the bill and its cuts to Medicaid. After Tillis declared that he would not seek reelection in 2026, Thune’s path narrowed. He would have to win over one of Sens. Collins, Paul, or Lisa Murkowski (R-AK). Ultimately, he and the Senate GOP leadership decided that Murkowski would be the easiest to convince, offering to double relief for rural hospitals from $25 billion to $50 billion and, presumably, removing a wind and solar excise tax from the final bill. Murkowski also gained relief for Alaska on fulfilling the new state requirements for SNAP, although a similar carveout for Medicaid was shot down by the parliamentarian. Thune adjourned the Senate until July 7, after Trump’s July 4 deadline.

The Senate’s version of the OBBB headed back to the House, where, despite facing some backlash, it passed. On Wednesday, Speaker Mike Johnson (R-LA) and the Trump Administration worked to win over the remaining holdouts. The House Freedom Caucus (HFC), in particular, was angry about several of the changes made in the Senate version, on the grounds that it:

  • increases the deficit.
  • fails to terminate the IRA tax credits entirely.
  • does not provide harder restrictions to prevent undocumented immigrants from using Medicaid.
  • softens provisions to target waste, fraud, and abuse in SNAP.

Despite HFC grumblings, Johnson called their bluff and put the OBBB up for a rules vote early Thursday morning. Under pressure, the HFC backed down, and the bill passed 219-213, with only Representative Brian Fitzpatrick (R-PA) breaking with his party to vote against it. In the end, few Republicans rebelled on the final vote, either, with only Brian Fitzpatrick (R-PA) and Thomas Massie (R-KY) joining the Democrats in opposition.

The OBBB’s Provisions and Consequences 

The general framework from the OBBB remains the same as when we last covered the subject. The bill consists of:

  • Tax Cuts – over $4 trillion in extensions to expiring Tax Cuts and Jobs Act (TCJA) provisions. New tax cuts, including Trump’s “no tax on…” campaign proposals (caps added in the Senate; neither chamber included Trump’s “no tax on Social Security” proposal). The tax cuts’ benefits are skewed towards the ultra-wealthy. 
  • Cuts to the Social Safety Net – over $1 trillion total in cuts to Medicaid and SNAP.
  • New Mandatory Spending – almost $300 billion in funding for immigration enforcement and defense. 
  • Other Provisions – Including a $5 trillion increase in the debt limit, the repeal of most of the IRA green energy tax credits, and harsh limitations on student loan repayment relief.

Source: The New York Times

The final version of the OBBB will add $3.4 trillion to the federal deficit over the next ten years, according to the most recent report from the Congressional Budget Office (CBO) — roughly $600 billion more than the House’s original version, which flies in the face of the framework that the House sent to the Senate and further erodes America’s fiscal health.

Trump and the GOP claim that the economic growth generated by the OBBB’s tax cuts will “pay for” the lost revenue, but reports from a long list of organizations, including the Tax Foundation, the Penn Wharton Budget Model, and the CBO, contradict this claim. Their studies consistently concluded that America’s GDP will grow by a modest amount in the short term (with an arithmetic average of around 0.5 percent annually) and then slow down considerably in the future as the fiscal costs of the OBBB, along with other side effects, will weigh down economic growth.

Also, as we covered previously, the OBBB’s tax cuts are not evenly distributed, with 69 percent of the benefits going to the wealthiest fifth of taxpayers. The poorest will be left holding the bag, as they will receive only very limited relief but suffer from large cuts to the social safety net.

Source: New York Times

On that note, by making the cuts to Medicaid even more severe than the version that passed the House, the final version of OBBB will kick even more people off their healthcare. The CBO estimates that 11.8 million more people will go uninsured under the Senate version by 2034, a million more than under the House version. That figure mostly focuses on Medicaid cuts; when factoring in how both the House and Senate versions will allow the pandemic-era subsidies to the ACA marketplace to expire, make it harder for states to maintain their ACA Medicaid expansions, and include a host of other cuts and changes to federal healthcare policy, the Washington Post reports that nonpartisan experts expect the Senate Version to kick a minimum of 17 million Americans off of their healthcare by 2034.

The end result is that thousands more Americans will die from preventable deaths on top of the 51,000 annually that would have resulted from the House version. To top it all off, there is no way to remove that many people from Medicaid without some fully-qualified, working Americans losing their coverage, and most Americans on Medicaid are already working.

Source: Paul Krugman

While new analyses are required to cover recent changes to the Senate version, the end result is that the new SNAP work requirements will deprive millions of Americans of their food assistance, with families with children getting hit the hardest. The OBBB will accelerate the insolvency of the Social Security and Medicare Trust Funds to 2032, according to the Center for a Responsible Federal Budget. The sunsetting of the IRA’s clean energy tax credits will bring many planned clean energy projects grinding to a halt, imperiling thousands of jobs and crippling America’s clean energy transition.

A full CBO report is expected to be released in a few weeks, and other organizations are likely to produce their own analyses within the same timeframe. Therefore, it is likely that we will not have a complete understanding of the OBBB’s impact until days or weeks after the bill is passed. From what we know already, precious few Americans will actually benefit from the One Big “Beautiful” Bill Act, and many more will suffer.

Other Developments

147K New Jobs Added, Unemployment Down to 4.1%

Total nonfarm payroll employment rose by 147,000 jobs while the nation’s unemployment rate ticked down to 4.1 percent last month, according to the June jobs report released by the Bureau of Labor Statistics this morning. The report shows that the labor market remains strong as the Trump administration’s economic policies, particularly its increased universal tariffs, begin to take hold in the economy. 

Job growth in April was revised up by 11,000 jobs, from +147,000 to +158,000 jobs, while job growth in May was revised up by 5,000 jobs, from +139,000 to +144,000 jobs. With these revisions, the combined job gains in April and May were 16,000 jobs higher than previously reported. 

Last month, the largest job gains came in:

  • Government employment (+73,000 jobs)
  • Health care (+39,000 jobs)
  • Social assistance (+19,000 jobs)

Job gains in government employment largely came from increases in employment in state and local government, while thousands of federal government jobs continued to be lost last month. 7,000 manufacturing jobs were lost in June.

The unemployment rate ticked down to 4.1 percent last month, from 4.2 percent in March, April, and May. The unemployment rate remains remarkably low, having remained fairly consistent between 4.0 and 4.2 percent for the past several months.

Today’s report indicates that the labor market remains strong but continues to show signs of cooling. The report comes about a month before the Federal Reserve’s interest rate setting committee, the Federal Open Market Committee, meets next to determine the fate of interest rates. The Committee has held rates steady this year after cutting rates by 100 basis points late last year. It will consider today’s positive report, along with inflation data, and most consequentially, the projected impact of the Trump administration’s drastic and chaotic policy changes. 

Trump Team’s Vietnam Trade Deal, Canada Negotiations 

Less than a week remains before July 9, the day that President Trump’s signature, historically elevated “Liberation Day” tariffs snap back into effect after a 90-day pause. The past 90 days were promised to be chock-full of negotiations and trade deals, even with the President promising “90 deals in 90 days.” While the USTR, Treasury and Commerce secretaries have been kept busy with negotiations, we have only seen deals with the U.K. and Vietnam and a partial deal with China. We could see an extension of the pause to some or all of the countries, as has been signaled by administration officials. The President, however, has signaled he does not want an extension, but would prefer simply to inform countries of their new rates. 

The trade deals the administration managed to secure over the past 90 days have been narrowly focused and are often part of a framework for longer-term negotiations. If anything, we have learned that tariff rates are likely to stay heightened as the administration continues to negotiate with upwards of 18 trading partners ahead of the deadline next week. 

Vietnam

Vietnam has secured a trade deal with the United States. According to the President’s post to Truth Social, Vietnam will face a 20 percent tariff on all goods entering the U.S. If the two countries had not reached a framework deal this week, Vietnam would face a 46 percent tariff when Liberation Day rates take effect next week. In an apparent attempt to target Chinese manufacturers who have relocated to Vietnam to avoid higher tariff rates, Vietnam will face a 40 percent tariff on any “transshipping.” U.S. exports will face no tariffs on goods exported to Vietnam, and reportedly, Vietnam will give the U.S. “total access” to their markets for American exports. Vietnam is America’s sixth-largest importer, with more than half of its exports to the U.S. being electronic products and apparel. 

Canada

Late last week, President Trump abruptly announced the United States would end all trade negotiations with Canada in response to a Digital Services tax that was set to take effect on Monday. The tax would have applied to American tech companies that made more than $15 million from Canadian users. Although the tax had been in place for nearly a year, Canada was set to start taking retroactive payments on June 30. On Sunday, hours before the tax was to take effect, Canada dropped the plans to collect payments for the tax. The United States and Canada now resume trade negotiations with the expectation of a deal by July 21. 

Banking Regulator Proposes Large Bank Capital Cuts

Federal banking regulators – the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) – have now opted to move forward with a proposal to reduce capital requirements for the largest, most systemically important U.S. banks, easing standards established to protect financial stability in the wake of the 2008 financial crisis. 

Capital functions as a buffer against losses and builds banks’ resilience during times of stress. Risk-based capital requirements require banks to hold capital based on the riskiness of their assets, but such asset holdings can be manipulated by banks. The supplementary leverage ratio (SLR) acts as a backstop to risk-based capital requirements. The enhanced supplementary leverage ratio (eSLR) requires the eight U.S. global systemically important bank holding companies (GSIBs) to hold an additional two percent of capital on top of the capital they must hold under the SLR. 

The proposed rule would modify the eSLR standards applicable to U.S. GSIBs and their depository institution subsidiaries and make corresponding revisions to total loss-absorbing capacity (TLAC) and long-term debt requirements. The proposal would reduce tier 1 capital requirements by 27 percent for bank subsidiaries of U.S. GSIBs, resulting in a $210 billion decline in bank capital.

The boards of the Fed and FDIC, and OCC approved the notice of proposed rulemaking late last week. Federal Reserve Governor and former Vice Chair of Supervision Michael Barr and Fed Governor Adriana Kugler voted against moving forward with the proposal. As Barr said in his dissent, “this proposal puts our banking system at risk by weakening the capital of the largest banking organizations.”

Look Ahead

Tuesday, July 8

Wednesday, July 9 

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