What Trump's tax bill means for your wallet

The One Big Beautiful Bill Act is really about one big thing: Taxes. Some conservative economists say it also shows a striking shift in Republican tax policy.

Erica York, vice president of federal tax policy at the Tax Foundation.

Liam Donovan, Republican political strategist and president at Targeted Victory,a GOP public affairs firm.

Patti Glover, craps dealer at a casino on the Las Vegas strip.

Ted Pappageorge, Secretary-Treasurer of the Culinary Workers Union Local 226 in Las Vegas.

Part I

MEGHNA CHAKRABARTI: On June 7th, Vice President JD Vance was on Theo Von's podcast. Now, June 7th happened to be quite an interesting day for Vance's boss, President Donald Trump. Elon Musk was on Twitter/X blasting the One Big Beautiful Bill Act, calling it a disgusting abomination due to how it will balloon the deficit.

As Vance bro chatted with Von, Musk tweeted out a claim that Trump is in the Epstein files, essentially making claims that the president is connected to Jeffrey Epstein's human and sex trafficking ring. The vice president hadn't seen the tweet, so Von read it out to him in real time. After that, the vice president fumbled around for an answer trying to find safe passage between the Scylla and Charybdis of Trump and Musk's egos.

And by the way, those two monsters from Greek mythology from the Odyssey, of course, are amongst my favorites, Scylla, a creature with dogs. And snaky necks, lured ships close to her lair where she would seize sailors right off the decks of the ships and Charybdis, a massive whirlpool monster that swallowed ship's hole three times a day.

Anyway, the fact that the vice president was really having trouble finding a good response to Von's reading of that Tweet isn't specifically what caught my attention. What caught my attention was the safe harbor that Vance steered his answer toward, he dove straight at what he said was the most important reason for the One Big Beautiful Bill.

VANCE: And I get the frustration there and I get the frustration that, look, Congress got this spending bill, but the main purpose of the bill is not actually spending or cutting spending, though it does cut a lot of spending. The main purpose of the bill is to prevent the biggest tax increase.

CHAKRABARTI: The main purpose of the bill is to prevent the biggest tax increase, as the vice president, or more precisely, to extend the 2017 tax cuts signed by Donald Trump in his first administration. That's it. That's what the vice president says is the budget reconciliation's core reason for being.

It's also the reason why we should be paying more attention to the bill. And all this week we are, all week long, we're taking a look at five big parts of the bill in detail. Yesterday it was health care and today it is taxes. Joining us now is Erica York. She's Vice President of Federal Tax Policy at the Tax Foundation.

Erica, welcome to On Point.

ERICA YORK: Hi. Thank you for having me.

CHAKRABARTI: Now, yesterday I asked our main guest if he had indeed read the major sections of the One Big Beautiful Bill Act on health care. He said yes. Same question to you. Just double checking. You've read over the parts of the bill regarding taxes.

YORK: Yes, that's right. I have.

CHAKRABARTI: The only reason why I'm asking is because there's this ongoing theme of it's 1,100 pages. Who reads it? Maybe not members of Congress, but that's why we're trying to do the work for them this week. So Erica, let's start by running through what some Republican lawmakers have said the bill will do or will accomplish when it comes to tax policy.

We're going to do a little true/false game here. So first of all, here's Republican Congressman Tom McClintock of California at a budget committee meeting last month in May.

This bill provides much of the tax and regulatory relief that is needed to revive the American economy. By this time next year, Americans could be enjoying one of the most explosive periods of growth in our history. Only those who remember what it was like to wake up in Reagan's morning in America can know how exciting and joyful that feels.

CHAKRABARTI: So Erica, true or false, we could wake up a year from now experiencing explosive growth in the American economy.

YORK: False to say explosive growth.

CHAKRABARTI: And why?

YORK: If you look at the bulk of what this tax bill does, it's to continue policies that are in effect today.

So most Americans won't notice a large difference. Our child tax credit will be roughly the same. Our standard deduction will be roughly the same. A lot of this is just an extension. Now, the bill does provide additional tax cuts on top of extension. But most of those tax cuts are not aimed at big increases in long-term growth.

They're aimed at carving out tax cuts for different groups of taxpayers, whether it's seniors, whether it's people in occupations where they earned tips as part of their income. So there will be tax cuts, but they're not tax cuts that are going to create an economic revival or juice growth so much that it's unbelievable.

CHAKRABARTI: Okay. So no morning in America? Perhaps. Alright, here's another one. This is House speaker Mike Johnson. He was on ABC News this week with George Stephanopoulos earlier this month.

MIKE JOHNSON: This is gonna be jet fuel to the U.S. economy and all wages are gonna rise. There's gonna be more jobs and economic opportunity for more people.

We cannot wait to deliver that.

CHAKRABARTI: Okay. So the jet fuel part, you've already talked about, Erica, but what about this claim that more jobs and wages are gonna rise?

YORK: The bill will incentivize more work. It will incentivize more labor supply. It's not really clear that it's going to have a big boost to wages though.

If you think about what are the drivers of long-term wage growth, the main driver is productivity growth and the way that we get higher productivity growth is through investment, innovation, new technology that is very complimentary to workers, but the provisions and the House passed bill, that would lead to more investment growth or are only temporary.

So they're not going to be here for a long enough time to really show that productivity growth, to show those long run increases in wages. So in our estimates, at Tax Foundation, for example, we find almost zero impact on long run wages, that we do find an expansion in jobs because of the labor supply tax cuts, which do incentivize people to work some more.

CHAKRABARTI: So I wanna talk with you a little bit later about the labor supply side, because I think that's quite important in terms of the overall economy. But just to repeat what you said, your analysis finds almost no evidence of any significant wage growth due to what's in the One Big Beautiful Bill Act.

YORK: Due to the House passed bill.

CHAKRABARTI: Yes, the House passed bill.

YORK: That could change with the Senate bill, because they do make some different choices than what the House did.

CHAKRABARTI: So when Speaker Johnson says all wages are gonna rise, quote, end quote. That's not based on any sort of meaningful, factual analysis that you can find.

YORK: That's right.

CHAKRABARTI: Okay, so here's one more. This is Senate Majority Leader John Thune, Republican from South Dakota, and he was on Fox News just this week.

JOHN THUNE: No tax on tips, no tax on overtime, lower the tax on social security recipients. Those are all things were the president's priorities and the House included them in their version of the bill, and now we will also have them incorporate into ours. So this is really about preserving and protecting families and ensuring that they've got more dollars in their own pocket than they're sending less to Washington.

CHAKRABARTI: Okay, Erica. So this is one where let me just have you answer.

The no tax on tip, no tax on overtime and social security, reduction in taxes there. This would put more money into the pockets of working families. True/false?

YORK: It's a mix. So the bills, House and Senate version do include no tax on tips, no tax on the premium portion of overtime pay.

That will provide tax cuts for some working families. If you're a working family that earns income in that way. If you are someone who is salaried, you don't get any tips, then you don't benefit from those provisions. So they're a tax cut for a small slice of the working population rather than a broad-based tax cut for all workers.

And then when it comes to no tax on social security the bill doesn't actually change taxes on social security benefits. Both versions of the bill would provide a bonus standard deduction for senior citizens. So they would get a larger standard deduction. Even if they're an itemizer, they would get to take this bonus deduction.

So it does provide a tax benefit to seniors. It's not structured the same way as what the president ran on. And of course, most seniors are not working. There's a bit of a mismatch there to say that it's a tax cut for working families when really, it's a primarily a tax cut for retirees when we're talking about the bonus senior deduction.

CHAKRABARTI: A-ha. Okay. Now Erica, I wanna take a step back here quickly. The Tax Foundation has been around for, what, 80 plus years, right? And it's an independent tax policy research organization. It's historically been described as not, well it's nonpartisan, right? But it's also been historically described as business-friendly center right.

Sort of maybe conservative leaning. First of all, is that a fair description of the Tax Foundation today?

YORK: I like to think of the Tax Foundation as hewing to the same principles over time. We've always consistently said, taxes should be simple, they should be neutral, they should be stable, they should be transparent.

And we've always thought the purpose of the tax code is to raise revenue for the government in the least distortive way possible. So it shouldn't hinder investment. It shouldn't hinder work. It shouldn't hinder saving decisions because the function of the tax code is to raise revenue and promote economic growth so that people can access opportunity.

Sometimes that aligns with more conservative tax policies. Sometimes that aligns with tax policies promoted by more progressives. And so it really depends on where the political parties fall and what types of tax policies they're promoting. But Tax Foundation has always remained consistent with those principles I outlined.

CHAKRABARTI: Okay. But a core principle is seeking and advocating for tax policy that promotes, like you said, revenue raising for growth in this country. Given that, overall, it doesn't sound like you think that the tax provisions in the budget reconciliation bill will accomplish that.

YORK: Not in a meaningful way, not, I would say the bill really falls short of the potential that could have been here. If you look at the revenue impact, we're talking about a $4 trillion tax cut over the next decade. And when you look at the economic impact for the House passed bill, we project that would boost long run GDP by 0.8%.

So if you want to measure like the bang for the buck there, or the return in terms of how much economic growth you get for how much revenue you're giving up, this is a pretty bad trade. You just shrug at it. Our estimate of the original 2017 tax law was that 10-year revenue cost, was about $1.5 trillion, and the long run economic boost would be about 1.7%.

So you can see a lot more cost-effective tax cuts in that package compared to what we're looking at here.

CHAKRABARTI: So pretty weak jet fuel, in other words.

YORK: Yes. Yep.

Part II

CHAKRABARTI: Erica, so let's get into some of the numbers, and just on an individual level in terms of income earners, who would be the big winners of the tax policies, should, to your point, at this point in time, the House version continue on?

YORK: So it would change over the next decade who would benefit and the pattern of how they benefit. Over the first four years of the bill including in this year, in 2025, it provides additional tax cuts beyond just extension of the expiring 2017 tax law.

So a larger standard deduction, a bonus standard deduction for seniors. No tax on tips, no tax on auto loan interest, no tax on overtime, there's this new idea called Trump accounts. So any children who are U.S. citizens who are born in 2025 through 2028 would get a $1,000 deposit to this new type of savings account.

So you can see distinct groups of taxpayers across those provisions who would temporarily benefit. Overall though, we do see a pattern that the bill would provide larger boosts to after tax income for higher income taxpayers than it would for middle- and lower-income taxpayers, and that pattern becomes starker across the next decade.

Because when a lot of those temporary tax provisions expire, what we're left with is the underlying extension, as well as some rules and eligibility changes around refundable tax credits, like the earned income tax credit, premium tax credits that would reduce benefits for lower income tax filers.

So by the end of the budget window, we would expect about the bottom 20% of tax filers to actually see a slight tax increases while the remaining tax filers would still see tax cuts. So it's a mixed bag, and a lot hinges on whether those temporary tax cuts would be extended again by a future Congress.

CHAKRABARTI: Okay. Two quick things. One is just a little refinement of detail. The Trump child account. It may be new in terms of being in an actual budget proposal, but it's an old idea, right? Or it originally, I don't know, even in Hillary Clinton's presidential campaign, I think was one of the first times the idea of a baby bond essentially came up.

But I want you to just repeat something, because I wanna be sure I heard you correctly, Erica. Several years from now, the bottom 20% of income earners in this country could actually see an increase in their taxes.

YORK: That's right. That's after the temporary tax cuts expire, and that's when these restrictions on refundable tax credits really start to kick in.

The tips against lower income households.

CHAKRABARTI: Okay. And then what about the upper income households? How much of that $4 trillion in tax cut revenue is going to them?

YORK: So we look at the percentage change in after tax income across different income groups. That's like an apples-to-apples way to compare.

That's for people at different income levels. So let's take 2026, for example, the first year where the extensions plus the new tax cuts all kick in. And we estimate the bottom quintile would see a 1.6% increase in after tax income. The top 1% would see a 3.8% increase in after-tax income.

So you can see that the increase for the top 1% is much larger than the increase for the bottom 20%. Which gives you an idea of the distribution of the tax cuts. On average, everyone does see a tax cut, but the tax cut for the top is much larger than the tax cut for the bottom.

CHAKRABARTI: Right, and these percentage increases.

Let's just do some like very basic quick math, right? If you are earning $1 million a year, say you got 1%, like the bottom 20% of earners, that would be $110,000, right? Did I just do that, right?

YORK: Yeah. Yep.

CHAKRABARTI: But if you got a 1% tax savings and you were only earning $40,000 a year, that's $400, right?

YORK: That's right. That's right.

CHAKRABARTI: Okay. So but then you're saying like the top earners are getting roughly 3% versus the bottom earners, who are getting a 1% reduction in their taxes.

Okay. There's the argument though, and this is a legitimate one. If I'm going into the math. That the highest income earners in this country have always paid the highest dollar amount in taxes.

So then a proportional reduction in the dollar amounts that they're paying in taxes isn't necessarily a bad thing.

YORK: Yeah, I think that's why percentage change in after-tax income makes the most sense. Because that is just looking at, how is the tax burden changing? It's not a reflection of, okay, what's the underlying distribution of income, or what's the underlying distribution of the tax system?

Because you're right, the starting point that we're working from is a very progressive individual income tax, where the top half of taxpayers pay the vast majority of individual income taxes, while the bottom half pay very little. And even if you go into the bottom roughly 30%, they don't pay anything, and they actually get refundable tax credits back.

So they have negative tax liability. So when you start from a distribution of the tax system in that way. Then it's very easy to get a pattern of tax change that reflects that underlying distribution.

CHAKRABARTI: Yeah. I really appreciate you going through this with me in detail and using numbers, Erica, because one major weakness I think in the media is this tendency to just talk about averages. And I've been seeing that the average American, average, whoever that person is, but the average American would receive a $1,700 tax cut from the bill in the first year. I'm seeing that's from the Institute of Taxation and Economic Policy.

And on the face of it, that sounds great, but averages are, they don't actually speak to that true spectrum, that you're talking about the curve, because I'll put some more numbers here. The top 1% of earners, we're talking about the very, very top. Those Americans making more than $920,000 a year would receive on average a tax cut of close to $70,000 in the first year.

If the House version goes through, if you're in the top like 0.1%, that's what? $3.4 million per year. You're gonna get $275,000 in tax cuts by 2027, whereas as you were talking about before, the bottom 40% of Americans in the income distribution, and these are Americans earning less than approximately $13,000 a year.

Their income actually overall would go down due to the other changes in the bills. So that spectrum is what really matters. Now, Erica, I want to go back to one quick thing that you said, which is kind of the heart of today's conversation. And in order to do that, I want to bring in Liam Donovan. He's a Republican political strategist and President at Targeted Victory, A GOP Public Affairs firm.

Liam Donovan. Welcome to On Point.

LIAM DONOVAN: Meghna, it's good to be with you.

CHAKRABARTI: So you heard Erica very meticulously explain why this is not a bill, as currently written, that's going to juice the American economy. She's talked about $4 trillion in revenue loss for the federal government. In exchange for a meager 0.8% growth in GDP.

Check that with me. Do you see this as an economic growth package as Republicans have historically championed?

DONOVAN: First, I'll start by saying I have the utmost respect for Erica. I've worked with Tax Foundation for many years. I think what you have to think about here is the counterfactual, which is this would be a $4 trillion tax increase absent congressional action.

So once you think of that as the alternative, that lends some perspective to what this project's really about. And I agree with the vice president. I agree with Erica. This is, at its core, a continuation of the existing policies from 2017. If you think about why we're here and what we're doing in this exercise, it's a function of a bit of a split screen in the treatment of the tax code in 2017.

If you think about how corporate tax directors think of their taxes, I think they were willing to make significant trade-offs, give up base broadening elements that allowed them to get a permanent corporate rate. On the individual side, Republicans were less willing to make those sorts of trade ups.

If you watched the salt, I'm sure we'll talk about this a little bit more, the state and local tax, just that one significant base broadener and the political fallout that ensued gives you an idea of why these were made temporary, in part because of the experience of the Bush tax cuts and the gambit in that involved the idea that no matter who held power in 2025, no one would be willing to let those expire.

If you think back to what the vice president was committing to do, even what the president before her was committing to do, 90% of these things were going to be continued. So that's the baseline, I think that's what is reflected in Erica's numbers in terms of the true kind of growth involved here. I think that's also a reflection of why some of these other elements are in here. Some of these non-traditional, non-Orthodox policies. The president, whatever you think of him, understands that there's a sales element to this.

You need to market. When he was going around to swing states, he was talking about these popular tax policies, not partisan ones, not even necessarily ideologically coherent ones, but no tax on tips, no tax on overtime, no tax on domestic auto interest. These are all popular ideas that pull, they don't necessarily fit into a coherent worldview, but they are what's gonna help sell this bill. And I think at the end of the day, what the white papers say, what the growth numbers are, that's all important.

And I think our listeners here and those of us speaking here, care about it. But it's not the political project at the end of the day, which is for stalling a $4 trillion tax hike, and giving things that Republicans can go out and campaign on and win elections on.

CHAKRABARTI: Point well taken, Liam, actually, and I appreciate your candor. So the goal is to get reelected, not necessarily put out a bill that reflects, as you said, a coherent worldview.

DONOVAN: The dirty secret here is at the end of the day, all these things, good tax policies is important, but I think the other piece of this is you're only going to get the tax policy that your coalition can agree on.

And at this point, with these margins and with this moment in Republican politics. It is an unwieldy coalition that yields an unwieldy policy product. This is also a function of, think about the last eight years, the dramatic transformation of this party. Of the political moment, and quite frankly, the personnel. If you think about the 224 votes in the House for the Tax Cuts and Jobs Act in 2017, only 83, 84 of those people are even left, that's a third of the chamber that was even here.

So while it's a continuation of these legacy Republican tax policies, most of these people don't have pride of authorship or ownership. That's, this is in some ways, there's a ghost ship element to this. And I think you're catching a party in transition. And so you have a kind of a hodgepodge of ideas that point in a direction away from sort of orthodoxy of the mid 2010s but isn't yet landed in a full-on populist party.

CHAKRABARTI: Okay. But Liam, let me just put a finer point on it, because at the very top of the show for people listening on the radio, we played some clips from both you and Erica in this thing that we called the one-minute billboard.

And in it, there was a clip of you saying that those people who've left Congress, as you just described, they've been placed by people who are, quote, less driven by policy and more driven by vibes. Is that what you're talking about?

DONOVAN: That is absolutely a reflection of the sorts of voices that you're hearing more and more.

And that's not to impugn the people that are in Congress, these are sharp people that wanna do the right thing for their constituents. But I think the experience, the level of sort of granular tax policy expertise is not there. If you think about, and Erica knows this well, if you think about the Ways and Means Committee, for instance, I think maybe four or five of them were on committee.

During the 2017 experience, less than half of the tax writers in the United States House of Representatives were in Congress eight years ago. So it's just a fundamentally steep learning curve since it's a little bit different and we're still picking apart what they came out with, but that is the confounding factor here.

CHAKRABARTI: But I wanna be clear on something, the idea that, okay, I'm gonna use an analogy. Like if I, for the past eight years, have been pretty awesome at running like a six-minute mile, right? This is not true in my real life. I'm not anywhere near a six-minute mile.

But let's say I am, and then I like take some, I don't know, electrolytes or something that promise to keep me at a six-minute mile. But on the packaging it says it will make you go faster, but actually all it does is keep me at a six-minute mile. It's some snake oil, Liam. That's what it sounds like the tax provisions in the bill are.

DONOVAN: I'm shocked to find gambling going on here. No. I think, look, it's, the shoes are gonna make you run faster and jump higher. No I think there's always an element of pizazz and selling the sizzle. And this is, think of who the president is and how he got there.

I think that's a level of exaggeration here. And, but look, this is a similar situation that we had in 2017. Tax cuts are going to pay for themselves. There's, in some ways it's a signaling exercise, right?

And to some degree, it is increasingly on the right, there's less trust or stock put into what the experts think or what, you know, what the think tanks think.

I think that was already slipping in 2017, but it was nonetheless more important to the Paul Ryans of the world, and I think flashing forward, this is an exercise where the president and the administration are taking a central role in a way they really didn't in 2017. Where he outsourced it to Paul Ryan and Mitch McConnell. And so I think that's a function of it, like the sales job is coming out of the administration and what happens in Congress is a reflection of the president's bombast.

CHAKRABARTI: Are you telling me that representative Marjorie Taylor Greene has never read Atlas Shrugged?

Come on, Liam. No, Erica, let me go back to you here. Because I want to get it back to the world of like actual policy or the interest that Americans have beyond the self-interest that lawmakers have of getting reelected. Because I think what Liam said is very important for us to explore about how it impacts Americans.

Because when he said it's not, there's no coherent worldview on taxations in this, on taxation in this bill, certainly that comes with a great opportunity cost. What are some of the things that we could be doing instead that would form a coherent taxation worldview that would actually grow the economy.

YORK: Yeah, I think the biggest trade off on that front, that the House tax bill made, was sunsetting these key provisions for business investment. So 100% bonus depreciation, R&D expensing. This new idea for investing in structures and getting to deduct that immediately, those go away after five years, so you're not going to get a permanent investment boom for a five-year, temporary tax cut.

And they compromised on that to reduce the revenue so they could do these other things that the president campaigned on. These flashy, these popular tax cut ideas. And so if they just made like that one simple decision differently, which the Senate has done in their initial bill, make those key provisions permanent. You can boost long run growth.

Part III

CHAKRABARTI: I want to hear from some Americans for a second on the special carve outs that we've been talking about. So here's Patti Glover. She works as a craps dealer at a casino in Las Vegas, and she thinks the no tax on tips portion of the bill actually wouldn't apply to her.

Or many other Vegas workers because they actually pool their tips.

PATTI GLOVER: The way that the bill is written is that it's for individually tipped earners. We are not individually tipped. We are pooled. The cashier's tips are also pooled. The slot people's tips are also pooled. Valet parking pool tips. It doesn't help the barbacks.

The only ones I believe that don't have pool tips are the bartenders and the cocktail servers.

CHAKRABARTI: She also says that many of her coworkers did vote for President Trump based on the promise of getting a no tax on tips provision passed. And she says that she makes what she calls an excellent living, about $250 in tips on an average day, plus $90 in wages.

GLOVER: And I'm not at the best casino. The Wynn, they make an ungodly amount of tips. They make over $100,000 a year in tips. That's what just has me just tapping my head really hard. Why did they do this? The dealers in these casinos, they buy a house and seven years later they have it completely paid off.

Why do they need more money? They're greedy. 'I don't care. I want more money. Let's not pay for education. Let's not pay for food programs for kids that are starving, long as I got that money.'

CHAKRABARTI: So that's Patti Glover. She's a craps dealer in Las Vegas. One more here from Las Vegas, because again. So many people work in the service sector there and are tipped workers.

This is Ted Pappageorge. He's the secretary treasurer of the Culinary Workers Union, local 226 in Vegas, and he says the union supports the idea of no tax on tips, but he actually thinks the budget bill does not go far enough. He'd like to see it address the sub minimum wage. And be permanent rather than temporary.

TED PAPPAGEORGE: But what we said is that, look, we're in the mix on this. This is the right way to go. Trump and Harris both made campaign promises on this issue, and it'll be at least one thing. These right-wing billionaires can actually keep their promise on when it comes to the cost of living.

CHAKRABARTI: Okay. Erica, what are your thoughts about that?

YORK: Yeah, it makes sense that people who would stand to benefit from it, a tax policy would want to support it. But I think it's worth highlighting some different types of inequities it can create even within people who work at the same establishment. So we are, that one example of potentially not qualifying depending on how you earn your tips.

I do think as the law is written right now, it would exempt cash tips, which the IRS defines to include tips received under a tip sharing agreement. So that might not necessarily be a problem under the way that it's currently written.

But you could imagine, say we're talking about restaurant workers, the person who washes dishes, the person who makes the food, the person who cleans the tables, if they aren't part of the tip sharing program and don't receive any tips, they're not getting a tax cut while the servers at the restaurant are.

You could compare other types of workers. If you look at the median wages of servers are very close to the median wages earned by store clerks. Store clerks don't earn tips, so they don't get any benefit from this type of tax policy.

So even though some workers may stand to benefit and may want to see that benefit be in place permanently, policies like this really create inequities between different types of work, which really violates the idea of fairness in the tax code.

CHAKRABARTI: Yeah. Okay. So Liam, again, this goes to what you were saying a little bit earlier, that we're waiting for a coherent policy to gel in the party of Donald Trump.

Because my understanding was that historically another thing that the Republican Party defined itself as is they were staunchly opposed to the government at all being in the game of picking winners and losers, right? Like this is why the Republican party wanted government to be out of business.

They wanted to be out of the interactions between employers and employees. And yet here we have the exact opposite. Explain that.

DONOVAN: I think there's a little bit of dissonance here, but I think the election of Trump and the continued success of Trump, the consolidation of Trump as power within the party I think has cut against some of those gut level orthodoxies and Republican policy.

I think it's okay to pick winners if it reflects what our constituencies are or what the groups of voters we want to reward. And I think this goes back to just the popularity aspect of this. In the abstract, this is a concept that gets 70/30 support maybe three quarters of the country supports.

Now in practice, the devil's in the details and an individual tipped worker might not like the way it applies. But these are policies, and I throw in the other ones. The no tax on social security. No tax on overtime. These are 70/30, 80/20 propositions. And I think one of the things that Trump has been able to drag Republicans toward is we'll just do things that are different, that cut against the impression and the caricatures that exist of Republicans.

Because this doesn't sound like the kind of idea the Republicans would normally support. And from a political standpoint, that's a good thing, right? In a moment where you have a 50/50 country, elections are one at the margin among voters who might look at the party differently, might not like the underlying party, but like the sort of the differences, the independent elements and the things that contrast with orthodoxy and the sort of traditional policies.

CHAKRABARTI: So I wanna play something from 2017. This, you're about to hear the voice of Senator Lindsey Graham of South Carolina. And 2017 obviously was when the first Trump tax cut bill was making its way through Congress and a reporter asked Senator Graham, what happens to the Republican party if you can't pass this tax bill?

And here's what the senator said.

LINDSEY GRAHAM:  Our base fractures, people won't put up our signs, people won't write checks. The party will collapse of its own weight. Steve Bannon will have a great argument to beat us. Other than that, nothing.

CHAKRABARTI: Erica, let me ask you something. Since you're so deeply involved in the policy world and trying to think about what a fair tax code would actually look like, that would benefit the country, the economy, the most Americans.

How do you respond to hearing a senator being so frank in that the greatest concern is people are not gonna put up their signs for reelection in their front yards, or donors will stop writing checks. That's the reason why they have to get the tax cut bill through.

YORK: Yeah, people respond to incentives and the incentives facing members of Congress are different than the incentives facing people like me who get to just analyze tax policy and think about what would be the simplest, the most neutral, the best structure for growth.

And, if you go back to 2017 and listened to one of the phrases Republicans said, it was broaden the base and lower the rate. That means giving up preferences and special carve outs for certain groups so that everyone can enjoy the benefit of facing a lower tax rate or a larger standard deduction.

Like I think Liam hinted at this, one of the areas where they did make a change like that in the 2017 law was with SALT, the state and local tax deduction. They placed a limit on that offset, the cost of some of the cost of lower tax rates. There's perhaps been nothing that received more political blowback than that decision.

So I think that just shows how tough the political tradeoffs are. If you prioritize what's really good policy, what may benefit people and the U.S. economy overall, but may have an outsized impact on certain groups of constituents. So you have to balance that, what's really good policy, with what's acceptable politics.

And right now, the acceptable politics have changed a lot.

CHAKRABARTI: So Liam, this is exactly why, if I'm gonna go so far as to say why people hate Congress, okay, because what Erica said is exactly right, like why are, but why do we have to make a tradeoff between what is actually good policy for the country versus what makes for good politics?

It's gotten to the point where members of Congress are saying the quiet part out loud. We're just going to get this through so we can get reelected, and donors will write us bigger checks. Whereas maybe someone who's not a tipped worker, but who voted for President Trump, maybe they're working at a minimum wage job somewhere else.

They're like, what about me? This is why people hate Congress. I just don't understand how this system can continue without, as you're saying. Just to further breakdown in like the entire process of governing this country.

DONOVAN: Look, I think the systemic problems and frustrations with Congress and with institutions and government is how we got here in a lot of ways.

But I want to take a step back. Because I think it's easy to be too glib and too cynical about the disagreements here. I think there are genuine disagreements on what good policy looks like. It's not as simple as saying good policy exists. We all agree on it, but we're going to do other things. No, there's disagreement on what that best policy and even among good policies, what we should prioritize.

Because you have to fit in whatever you can fit. And then you have to agree on the deficit. There are a bunch of different dimensions and axes we're working on here. So I think these are difficult problems. These are complex problems and I think people have different values and good faith disagreements on that.

So I think that's important to keep in mind. I think the question though posed to Senator Graham is what happens if they can't agree on this massive, huge bill and it all falls apart? I think there's sort of two iterations of it. Number one is it probably collapses from permanency or sort of 10 years to a much shorter-term thing, which is perhaps good in the sense that the status quo reigns and nobody has to make those trade-offs and eat the political pain.

But it does mean we're going to be right back here in a number of years. Nobody really wants that. The other alternative is if Republicans can't agree among themselves, this is what Chairman Smith have warned about what Speaker Johnson have warned about. If they can't get their act together on a partisan basis and use the reconciliation process, then they have to go through Leader Schumer.

Go through the Democrats, and like I said before, Democrats also, they won't necessarily lead with this, but they want most of these tax policies to continue. But it would be much messier and reflect much less in terms of the Republican partisan priorities.

But I don't think anybody's willing to absorb a $4 trillion or more tax hike. The tentpole observation I'd make here is, as I mentioned, the corporate side is handled, the vast majority of American businesses, particularly small, medium sized businesses, pay through the individual side of the code.

So when we talk about what that 1% is, that's where half of Americans work. That's where half of our business income comes from. This is a significant chunk of our economy. I don't think there's an appetite to go over this cliff, but it also means this is an opportunity to do good long-term tax policy, and I hope they take it.

CHAKRABARTI: Erica. We have about two minutes left here, and both of you have mentioned the SALT cap a couple of times, and I do think we should just talk about it briefly. Give us your take on where that debate stands right now and what you would actually like to see happen.

YORK: If we're talking ideal policy, $0. Having no SALT detection, that's obviously not even close to the realm of what is possible.

So the House passed a bill that would cap it at $40,000 and that higher cap would phase out for higher income taxpayers so that they would end up facing a $10,000 cap. The Senate has said their opening bid is the $10,000 cap that's there now, we're gonna land somewhere in the middle. The higher we place that cap, the more revenue that uses up, that cannot be used for other things.

And it's also important to think about who benefits here. This is really a provision that's used by upper, middle- and higher-income taxpayers. It's not something that's going to benefit the working class. That so many lawmakers and that the president are talking about, are supposed to be the beneficiaries of the bill.

So the more dollars you use for SALT cap relief for higher income taxpayers, the fewer dollars you have to either make the key business provisions permanent and deliver real growth, the fewer dollars you have to deliver tax relief to lower middle working-class households.

CHAKRABARTI: And Liam, this is one that gets right back into your wheelhouse, right?

Because it is very, it's a political hot potato. No?

DONOVAN: It is a political hot potato. But I think the majority in the House is built on members from the states where, you know, both substantively, they want to take care of the constituents and politically they're gonna be roasted by Democrats if they don't be seen, if they're not seen as significantly providing relief here.

But I think the issue is they need to figure out what a win looks like and be able to get there, run with it and run on it. Because just by kicking and screaming here, that doesn't get them to the finish line.

CHAKRABARTI: Erica, I'm gonna give you the last word here. We have about 30 seconds left.

Do you, as a tax expert, do you actually see this as a major shift and perhaps now a permanent shift in what was historically the Republican party's embrace of policies that were supposed to bring overall economic growth. And if so, what does that, what might that mean for the country?

YORK: If the House version of the bill is the final version, then yes, I do think it's a major shift away from placing growth as the top priority towards placing these carve outs towards the top priority. We've seen the Senate version though make different choices and prioritize pro-growth, so it's too soon to say how big of a shift it is, but things are shifting.

The first draft of this transcript was created by Descript, an AI transcription tool. An On Point producer then thoroughly reviewed, corrected, and reformatted the transcript before publication. The use of this AI tool creates the capacity to provide these transcripts.