The US House of Representatives passed a large budget reconciliation bill last week with large tax cuts for the wealthy and anticipated spending cuts in areas like Medicaid, premium subsidies on the healthcare insurance marketplace, SNAP and WIC.

I’ve been on vacation and haven’t had much time to delve into the details of the bill (which still needs to get through the Senate), but here are the basics:

  • Medicaid Reductions
    • Introduction of stricter eligibility requirements and work requirements for certain populations.
    • Estimated to begin FY 2027, with full implementation phased in by FY 2029.
    • Cuts estimated to reduce federal Medicaid spending by hundreds of billions over ten years.
  • ACA Healthcare Marketplace Subsidy Reductions
    • Reduction or phase-out of enhanced subsidies provided under the American Rescue Plan.
    • Implementation expected to begin in 2026, after the next presidential election cycle.
  • Supplemental Nutrition Assistance Program (SNAP) Cuts
    • Tighter eligibility verification and proposed caps on benefit levels for certain recipients.
    • Changes scheduled to take effect starting in 2026, fully phased in by 2028.
  • Women, Infants, and Children (WIC)
    • Funding reduced from current levels; states expected to impose stricter enrollment caps.
    • Budgetary impact begins FY 2026, with reductions expanding through 2029.
Cooking the Books

While the tax cuts are implemented immediately (boosting after-tax income for the highest earners) the “savings” from cuts to Medicaid, SNAP and WIC are averaged over a 10-year window. 

I think it’s probable that future Congresses or administrations will modify or cancel the cuts to Medicaid and SNAP once folks understand what they will actually do to their constituents – but leave the tax cuts in place.

The Most Important Staffer in Congress You’ve Probably Never Heard Of: The Senate Parlamentarian

All this creates a fiscal illusion. Spending appears to be reduced on paper, but real-world impacts of the benefit cuts may be negligible if (when) the cuts are reversed… further exploding the deficit.

All this poses real and huge financial risks due to exploding borrowing costs. Markets are already reacting — 20-year U.S. Treasury yields are above 5%, signaling investor concern about rising long-term deficits and U.S. creditworthiness and making servicing the US debt untenable.

Let’s see what the Senate does.

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