Trump's "big and beautiful" bill: Who is hurt and who benefits?

Author:FirstFinance Elegant

The "Big and Beautiful" tax cut bill pushed by US President Trump was sent to his desk for signature before the July 4 deadline he set, but the bill will hurt US energy and health care.

On July 3rd local time, the bill passed the House of Representatives with a vote of 218 to 214. The "Big and Beautiful" bill aims to achieve several of Trump's core policy goals in a package of legislation. In order to extend the current tax cut policy and increase the defense and border security budget, it will cut spending on Medicaid and food assistance programs, and cancel government support for electric vehicles and solar projects.

However, according to estimates by the Congressional Budget Office (CBO), the bill is expected to increase the national debt by $4.1 trillion and cause 11.8 million Americans to lose their health insurance by 2034. A recent survey by Morning Consult, an American polling company, showed that 50% of voters opposed the content of the "big and beautiful" bill, while the support rate was 36%.

Matt Gertken, chief geopolitical strategist at BCA Research, a global economic analysis company, told the First Financial reporter that the passage of the bill was expected because the United States must raise the national debt ceiling to avoid a technical default, while also preventing a $350 billion tax increase in 2026 that would impact the Republican midterm elections. However, the passage of the bill, coupled with the re-implementation of tariffs, will increase deficits and policy uncertainty, thereby posing short-term risks to bond and stock markets.

Which companies are unfavorable to cuts in health insurance

The bill will have a profound impact on the U.S. health insurance system, and is expected to cut about $900 billion in Medicaid spending in the next few years and reverse many of the progress made in the health insurance field during the Biden and Obama administrations. It is worth noting that the bill failed to receive support from any Democratic members when it was voted on in Congress.

According to a poll conducted by KFF, a health policy research organization, in April this year, more than three-quarters of American adults oppose a significant cut in the Medicaid budget, including more than half of Republican respondents. Republican Senator Josh Hawley of Missouri warned that cutting health care to fund tax breaks is not only morally untenable, but also "politically suicidal."

The U.S. Medicaid program originated from the authorization of the U.S. Social Security Act of 1965. Initially, it only covered specific groups such as low-income children, the elderly and the disabled who lost their parents' support. However, the coverage of the program has been significantly expanded, and the number of participants in June 2024 has reached 83.1 million. Among them, the Affordable Care Act (ACA) passed by the Obama administration will expand coverage to groups with higher incomes but still lack insurance. In 2009, before the implementation of the ACA, the number of Medicaid participants was 60.9 million, and by 2023 it had climbed to a historical peak of 94.6 million.

The core of the "big and beautiful" reform bill lies in the adjustment of the Medicaid funding structure. First, the bill will impose stricter restrictions on state governments' applications for federal matching funds, and set a cap on "provider taxes" (a key tool used by state governments to reduce Medicaid's financial pressure) from 2028, which may force states to reduce Medicaid coverage or reduce benefit levels. Secondly, the bill introduces strict "work requirements" provisions,requiring Medicaid beneficiaries to work, participate in volunteer services or receive education for at least 80 hours per month, and submit certification documents regularly, otherwise they will lose their eligibility for insurance. This provision is expected to take effect as early as January 2027, which may cause millions of people to lose their medical insurance because they cannot meet the requirements. Spencer Perlman, director of medical research at Veda Partners, a U.S. financial consulting firm, estimates that since Medicaid insurance companies are paid a fixed amount per member, the decline in Medicaid enrollment will directly affect the revenue of insurance companies such as Elevance Health, Centene and Molina Healthcare, which have large exposure to the Medicaid market. In 2024, more than 88% of Molina's total members will come from Medicaid plans, Centene about 46%, and Elevance about 19.5%.

Chris Meekins, a health care policy analyst at investment bank Raymond James, said the bill is expected to put pressure on hospitals and reduce the funds they receive, and hospitals must look for income elsewhere. In addition, the new bill contains some provisions to adjust health savings accounts (HSA), which is considered to be beneficial to telemedicine companies.

The renewable energy industry has suffered a heavy blow

This "big and beautiful" bill cancels a number of clean energy preferential policies during the Biden administration, and further imposes targeted restrictions on renewable energy such as solar and wind power to encourage fossil energy production.

The bill first cancels all unused funds from the $20 billion greenhouse gas emission reduction fund in the Biden administration's Inflation Reduction Act, and revokes a number of unallocated grants from the U.S. Department of Energy, including special funds for power transmission deployment, low-carbon building materials research and development, building decarbonization projects, methane emission reduction in the oil and gas industry, and tribal energy loan programs. In the field of electric vehicles, the bill decides to terminate the $7,500 new car purchase tax credit policy from September 30, and the $4,000 used electric vehicle credit will no longer exist.

Tesla founder Musk criticized the bill as "completely crazy and destructive. It subsidizes traditional industries while severely damaging future industries."

Specifically, climate-specific funds for solar and wind energy have been significantly cut, and related tax incentives are also facing major adjustments. The 30% tax credit policy, which originally lasted until 2032, will be significantly tightened, and projects must be put into operation by the end of 2027, a year earlier than the original proposal of the House of Representatives. In addition, new local manufacturing component requirements must be met to obtain tax credits. From 2026, clean energy projects such as solar panel and battery manufacturing must also meet new material procurement standards.

John Hensley, senior vice president of market analysis at the American Clean Energy Association, said that changes in related tax measures will increase the burden on the industry by about $4 billion to $7 billion. Morgan Stanley analyst Andrew Percoco also said that the bill brought "the worst results for solar and wind energy."

Abigail Ross Hopper, CEO of the Solar Energy Industries Association, said that the bill would threaten about $450 billion in infrastructure investment, which could lead to the disappearance of about 300 gigawatts of wind and solar projects in the next 10 years, increase electricity prices for consumers, and put pressure on the power grid.

The North American Construction Union also warned that if the energy tax credit is canceled and other measures in the bill are implemented, nearly 2 million jobs in the construction industry will be at risk.

In the field of fossil energy, the bill brings a number of substantial benefits. The royalties for coal mining will be reduced from 12.5% ​​to 7%, the area of ​​federal land leasing will be expanded by 4 million acres, and a tax credit of 2.5% of production costs will be provided to metallurgical coal producers. In addition, the drilling permits on federal lands will be simplified (from annual renewal to a four-year validity period) and leasing procedures, and some environmental protection measures will be prohibited. The bill also requires 30 offshore lease auctions in the Gulf of Mexico (the "American Gulf") within 15 years.

Ingrid Malmgren, senior policy director of the electric vehicle industry organization Plug In America, analyzed that an unexpected consequence of this bill may be to promote a surge in electric vehicle sales from July to September, because people hope to use the tax credit of up to $7,500 as soon as possible before the provisions of the bill take effect.

Who are the beneficiaries?

The "Big, Beautiful" bill extends the tax cuts for companies, and has been welcomed by business groups such as the U.S. Chamber of Commerce and the Business Roundtable.

Overall, the bill restores the tax deduction policy in the 2017 Tax Cuts and Jobs Act that allowed companies to deduct the full amount of equipment purchase costs in the same year. This incentive has been phased out since 2023 and will now be fully implemented again. At the same time, the tax treatment of research and development costs has also returned to a more favorable model. Companies can once again deduct research and development expenses in full in the year the expenses are incurred, rather than having to deduct them in installments over five years as required by the 2017 bill.

For American manufacturers, the bill changes the tax treatment of new manufacturing facilities. Under the new rules, companies that start construction of manufacturing facilities between January 19, 2025 and January 1, 2029 can enjoy an immediate and full tax deduction. This provision is designed to stimulate manufacturing investment, especially for the semiconductor industry, and the bill also provides additional tax incentives specifically for chip manufacturers that build factories in the United States.

In addition, high-income Americans will also benefit from this bill. According to a budget model from the Wharton School of the University of Pennsylvania, the net income of the top 20% of households will increase by nearly $13,000 after deducting taxes and transfers, which means that these households will have an average income increase of 3%. In contrast, middle-class households with an annual income of $53,000 to $96,000 will see an increase of $1,430, an increase of 1.8%. For the lowest-income group with an annual income of less than $18,000, after deducting the social security cuts, their actual after-tax income will be reduced by $165, a decrease of 1.1%. .