The simple math of the big bill

Summary

Planet Money: The Simple Math of the Big Bill Released on July 4, 2025

Hosts: Sally Helm and Kenny Malone
Guest: Kelsey Snell, NPR’s Congressional Editor
Additional Contributions: Valerie Ramey (Hoover Institution), Howard Gleckman (Urban Brookings Tax Policy Center), Mary Childs, and Karen Dinan (Harvard University)

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1. Introduction: The Passage of a Monumental Bill

On July 4, 2025, a significant piece of legislation, previously known as the One Big Beautiful Bill, was officially passed by both the Senate and the House, receiving the President’s signature by the deadline. This bill is poised to have substantial economic implications across various sectors.

Kelsey Snell (00:33) announces the passage:
“President Trump's July 4th deadline.” (00:33)

2. Understanding the Tax Cuts

At the heart of the bill are extensive tax cuts, primarily making permanent the marginal tax rate reductions introduced in President Trump’s 2017 tax law, which were initially slated to expire.

Key Features:

• Permanent Marginal Tax Rate Cuts: Extends tax cuts for individuals and businesses.
• New Tax Provisions: Includes elimination of taxes on overtime and tips.

Kelsey Snell (01:57) summarizes:
“This is a massive piece of domestic policy, a tax and spending bill that at its core takes some of the huge tax cuts from the first Trump administration and makes those permanent.” (01:57)

Beneficiaries: While low-income households receive minor breaks, the most significant benefits accrue to high-earning individuals, particularly those earning between $460,000 and $1.1 million annually.

Howard Gleckman (08:25) explains:
“The households that do the best in this law, by our analysis, are households that make between $460,000 and $1.1 million.” (08:25)

3. The Mechanics of Tax Impact: Static vs. Dynamic Scoring

The bill’s financial implications hinge on how tax cuts are evaluated:

• Static Scoring: Assumes no change in GDP or behavior, resulting in a straightforward loss of tax revenue.

  Valerie Ramey (09:21) states:
  “Static scoring calculates how much tax revenue will change given the change in tax rates and deductions, but assuming no effect of that tax change on the path of GDP and income.” (09:21)

• Dynamic Scoring: Accounts for potential economic growth spurred by tax cuts, potentially offsetting some revenue loss.

  Kelsey Snell (10:04) elaborates:
  “Dynamic scoring is include these effects in your calculation.” (10:04)

Conclusion on Tax Cuts: Despite some economic growth, the net effect of the tax cuts results in a substantial fiscal deficit, estimated at $4.5 trillion over the next decade.

Kelsey Snell (05:45) concludes:
“It does not require hundreds and hundreds of pages of reading to get an understanding of that.” (05:45)

4. Spending Cuts: Medicaid and Beyond

To balance the tax cuts, the bill introduces significant spending reductions, notably targeting Medicaid and other social programs.

Medicaid Cuts:

• Eligibility Tightening: Implements work requirements, leading to an estimated 8 million Medicaid eligibility losses by 2034.

  Kelsey Snell (15:20) warns:
  “About 8 million people will lose their Medicaid eligibility by the year 2034.” (15:20)

• Provider Tax Adjustments: Reduces the federal matching rate for Medicaid spending, effectively decreasing federal contributions by approximately $200 billion over ten years.

  Kelsey Snell (19:40) explains:
  “This is going to apply to the 40 states that have expanded Medicaid under the Affordable Care Act.” (19:40)

Other Spending Reductions:

• Food Stamps (SNAP): Imposes stricter eligibility requirements, sparking debate between Republicans and Democrats over program integrity versus aid reduction.
• Green Energy Incentives: Eliminates tax credits for energy-efficient home and commercial investments, reversing policies from the Biden administration.

Kelsey Snell (03:07) notes:
“So where do we land? How does this big tax cut affect growth?” (03:07)

5. Financing the Deficit: The Role of National Debt

With tax cuts and spending reductions unable to offset each other, the bill necessitates increased borrowing, exacerbating the national debt.

Current Debt:
The federal debt stands at $36 trillion, with the new bill adding an estimated $3 trillion over the next ten years.

Mary Childs (23:13) states:
“The federal debt, how much we collectively owe, already stands at $36 trillion total.” (23:13)

6. The Impact of Rising Debt: Two Phases

a. Government Phase:

• Increased Interest Payments: As debt grows, so do interest payments, consuming a larger portion of federal expenditures.

  Karen Dinan (25:00) explains:
  “Interest payments have become a really large share of the spending that we're doing.” (25:00)

• Reduced Fiscal Flexibility: Higher debt limits the government's ability to fund other initiatives or respond to crises, such as infrastructure repairs or economic bailouts.

  Karen Dinan (27:28) illustrates:
  “More potholes. We'd be more likely to see problems with bridges.” (27:28)

b. Private Sector Phase:

• Crowding Out Effect: Government borrowing drives up interest rates, making it more expensive for businesses and individuals to obtain loans.

  Karen Dinan (28:54) defines:
  “When the government goes out and borrows, it's actually competing with other people who want to use that money.” (28:54)

• Higher Borrowing Costs: Elevated interest rates increase costs for mortgages, car loans, and business financing, potentially slowing economic growth and reducing consumer spending on non-essential items.

  Kelsey Snell (29:22) summarizes:
  “High interest rates hurt businesses.” (29:22)

Visual Representation: A chart discussed (26:31) highlights the sharp increase in federal interest expenditures post-2020, reflecting escalating costs associated with growing debt.

7. Final Analysis: Balancing the Bill's Economics

The overarching financial equation of the bill—$4.5 trillion in tax cuts versus $1 trillion in spending cuts—leaves a significant $3.5 trillion gap, to be addressed through increased borrowing. The compounded effect of higher interest rates and reduced fiscal flexibility poses long-term risks to both government operations and the broader economy.

Howard Gleckman (31:13) encapsulates the situation:
“When you don't pay for the tax cuts, you increase the deficit. The government has to borrow more.” (31:13)

8. Conclusion: Implications for Individuals and the Economy

The passage of this bill marks a substantial shift in economic policy, with profound implications:

• Wealth Transfer: Tax cuts favoring the wealthy juxtaposed with cuts to social programs may exacerbate economic inequality.
• National Debt: The increasing debt burdens future generations and limits economic policy flexibility.
• Economic Growth: While some growth may be stimulated by tax cuts, it is insufficient to counterbalance the deficit, leading to higher interest rates and constrained economic opportunities.

This episode of Planet Money delves deep into the intricate math behind the bill, offering listeners a comprehensive understanding of its multifaceted economic impacts.

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Notable Quotes with Timestamps:

• Kelsey Snell (01:57): “This is a massive piece of domestic policy, a tax and spending bill that at its core takes some of the huge tax cuts from the first Trump administration and makes those permanent.”

• Howard Gleckman (08:25): “The households that do the best in this law, by our analysis, are households that make between $460,000 and $1.1 million.”

• Valerie Ramey (09:21): “Static scoring calculates how much tax revenue will change given the change in tax rates and deductions, but assuming no effect of that tax change on the path of GDP and income.”

• Kelsey Snell (10:04): “Dynamic scoring is include these effects in your calculation.”

• Karen Dinan (25:00): “Interest payments have become a really large share of the spending that we're doing.”

• Karen Dinan (28:54): “When the government goes out and borrows, it's actually competing with other people who want to use that money.”

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Produced by: Sam Yellow Horse Kessler
Edited by: Just Jang
Executive Producer: Alex Goldmark
Engineering: Sina Lofredo
Fact-Checked by: Sierra Juarez
Special Thanks: Jared Walzack at the Tax Foundation

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This summary aims to provide a comprehensive overview of the episode "The Simple Math of the Big Bill," capturing the essential discussions and analyses presented by the hosts and guests.

Transcript

[Sponsor Voice]

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[Sally Helm]

This is Planet Money from NPR.

[Kelsey Snell]

The bill formerly known as the One Big Beautiful Bill has officially passed both. The Senate being equally divided, the vice president votes in the affirmative and the amendment is agreed to and the House. The motion is adopted and it will be signed or may have already been signed by the president, depending on when you're listening to this meeting, President Trump's July 4th deadline.

[Sally Helm]

This is a huge bill, soon to be law with huge economic implications. And as is the custom here at Planet Money. Hey there. How are you?

[Kelsey Snell]

Well, Kelsey Snell, here we are again.

[Sally Helm]

Here we are. We called our dear colleague Kelsey Snell to talk about this big new law.

[Kelsey Snell]

Kelsey is NPR's congressional editor and tends to take on the, the masochistic task of reading every single word of these huge bills.

[Sally Helm]

This bill is north of 800 pages. Kelsey, of course, has read it.

[Kenny Malone]

Actually, I've read a couple different versions of it.

[Kelsey Snell]

And at this point, do you have a kind of ritual? Do you, do you crack open a pack of Pecan Sandies and.

[Kenny Malone]

No. What you need, though, there, you need one of two things, either two screens right next to each other or you need a printer.

[Sally Helm]

Kelsey confesses to printing this one single sided.

[Kelsey Snell]

Please tell our audience that you recycled it when you were done.

[Kenny Malone]

Oh, of course.

[Kelsey Snell]

Now, okay, so the headline stuff here, this is a massive piece of domestic policy, a tax and spending bill that at its core takes some of the huge tax cuts from the first Trump administration and makes those permanent. And then on a much smaller scale, dollar wise, at least adds a bunch of spending on things like immigration enforcement and defense, and then reduces spending on things like Medicaid, food stamps, green energy to try and balance out the tax cuts and the new spending.

[Sally Helm]

Kelsey pulls up the bill to show what this means in practice.

[Kenny Malone]

Why don't you scroll over in sections 70501 through 70514.

[Sally Helm]

These are the big cuts to things that were meant to encourage green energy investment, tax credits for efficient home energy and for clean commercial vehicles going away, for example.

[Kenny Malone]

Republicans have said that they want to undo a lot of these kinds of green incentives that were a part of, you know, remember when Democrats Talked about the Green New Deal.

[Kelsey Snell]

Yes.

[Kenny Malone]

These are provisions that Democrats got passed under President Biden that would have provided a lot of incentives and tax credits for people who are investing in energy efficiency.

[Kelsey Snell]

So that stuff is gone now. And then there are the cuts to snap the Supplemental Nutrition Assistance Program, also known as food stamps. The bill has new eligibility requirements that Republicans say will get rid of waste and fraud in the program and that Democrats say simply drops people from the program to save money.

[Sally Helm]

Kelsey wants to show us something in.

[Kenny Malone]

That section, control F for the word non contiguous.

[Kelsey Snell]

Okay. Non contiguous.

[Sally Helm]

This takes us to a list of exceptions to the new tighter food stamp eligibility. So the new stricter requirements do not apply to children, to parents who are taking care of a child under 14 years old, to people who are pregnant.

[Kenny Malone]

But then if you keep scrolling, there is an exception for people living in non contiguous states with an employment rate that is at or above one and a half times the national unemployment rate. So what does that mean? That means Alaska and Hawaii.

[Kelsey Snell]

Right.

[Kenny Malone]

So this is a carve out that says that, you know, these cuts to food stamps don't apply to people in home, Hawaii and in Alaska, largely because they needed to find ways to convince Lisa Murkowski to vote for this.

[Kelsey Snell]

Senator Lisa Murkowski, Republican from Alaska, got a few different carve outs in this bill, actually.

[Sally Helm]

For example, Kelsey takes us to a section of the bill 70 titled Adjustment of charitable Deduction for Certain Expenses Incurred in Support of Native Alaskan Subsistence Whaling.

[Kenny Malone]

So that is a tax break for whalers in Alaska.

[Kelsey Snell]

So this is kind of preserving a lifestyle of an indigenous Alaskan community.

[Sally Helm]

That's right.

[Kelsey Snell]

I see. Okay.

[Kenny Malone]

And again, that is something that Lisa Murkowski really wanted to see get into this bill.

[Kelsey Snell]

There are so many ways to study and process a bill like this. You can read it like a kind of legislative forensic investigator looking at the evidence of who got carve outs that got the bill passed.

[Sally Helm]

You can look at the historic political pendulum, the policies put in place by one administration being shredded by a new administration.

[Kelsey Snell]

Or there is a very simple way to understand this, because at the end of the day, it arguably all comes back to this simple math. This is a bill that makes a big chunk of the Trump tax cuts permanent and tries to balance that out with spending cuts.

[Sally Helm]

And Kelsey says it does not require hundreds and hundreds of pages of reading to get an understanding of that.

[Kelsey Snell]

So is it? Am I permitted to not read all 800 pages? And just think of this as basic arithmetic where it's like big tax cuts are going to require big spending cuts. And does it balance out? Spoiler.

[Kenny Malone]

It does not.

[Kelsey Snell]

I don't think it's close to balancing out. Correct.

[Kenny Malone]

No, it's not.

[Kelsey Snell]

Hello and welcome to Planet Money. I'm Kenny Malone.

[Sally Helm]

And I'm Sally Helm. And today on the show, the simple arithmetic with profound ramifications, tax cuts, slashed spending and the deficit it will add to.

[Kelsey Snell]

Today on the show, we walk through that simple arithmetic. We're going to look under the hood at how all of this gets calculated and how the cuts will actually happen. And then we will look at how bigger government debt means changes for all of us as little economic beings out there, the world.

[Sally Helm]

This message comes from NPR's sponsor, Holiday Inn by IHG. It's a new day for a new stay at Holiday Inn for business travelers. With modern spaces for meeting and working, plus delicious dining from breakfast to happy hour and dinner, you have everything you need to get work done. You give your everyday business travel an upgrade. Book your next business trip at Holiday Inn by IHG. Visit holidayin.com to book your stay. Okay, so we are looking at the simple math problem of the big tax cuts require spending cuts, which may or may not in this case do not balance out in the end. So let's start with the tax cuts. What are they and how much revenue will go away when those taxes go away. I called up two people to help me figure this out. Valerie Ramey, senior fellow at the Hoover Institution, was an econ professor at UC San Diego for 36 years.

[Valerie Ramey]

I used to teach 500 students principles of macro. So I try to be clear.

[Sally Helm]

And Howard Gleckman, also a senior fellow at the Urban Brookings Tax Policy center, loves talking about taxes.

[Howard Gleckman]

It's actually fun. It's like, it's like figuring out a puzzle.

[Sally Helm]

So first piece of the puzzle, what exactly are these tax cuts? The biggest one permanently lowers marginal tax rates, basically across the board. These were tax cuts that were in President Trump's 2017 tax law but were set to expire at the end of this year. Other tax cuts from that law got extended, too. The majority of the tax cuts in this bill are for individuals, but there are also some in there for businesses. There's a group of new tax cuts that are versions of things Trump talked about on the campaign trail, like no taxes on overtime, no tax taxes on tips. And if you take the tax cuts as a whole, Howard told me, on average, low income people do get a small break.

[Howard Gleckman]

But the households that do the best in this law, by our analysis, are households that make between $460,000 and $1.1 million. So not the super rich, not the Bill Gates and the Elon Musk of the world, but very wealthy partners in big tax firms or doctors or small business owners, people like that.

[Sally Helm]

So next piece of the puzzle, taken together all these different tax cuts, how much do they add up to? Now you'd think there would be just one answer to that question. But when the official scorekeepers assess these kinds of tax cuts for the budget, there are two ways that they can look at things. And the difference gets into actually one of the key things about what taxes essentially are. Okay, so the first way to score a tax cut like this kind of the traditional way, it's called static scoring.

[Valerie Ramey]

Static scoring calculates how much tax revenue will change given the change in tax rates and deductions, but assuming no effect of that tax change on the path of GDP and income.

[Sally Helm]

So it's kind of a simple one in a way. It's like if everything stays the same.

[Valerie Ramey]

Yes.

[Sally Helm]

Then this is just like if we cut taxes, we lose money.

[Valerie Ramey]

Exactly, exactly.

[Sally Helm]

Okay, Yes. I mean, why is that not where we stop? Like, what is even the other option?

[Valerie Ramey]

Okay. The other option is to recognize that changes in taxes have incentives effects and they will lead to changes in GDP and income and work behavior, all kinds of things.

[Sally Helm]

That second option is called dynamic scoring. It thinks about whether tax cuts will spur growth in the economy, because if they do, then the tax base gets bigger. So even if the government cuts tax rates, they're overall taxing more money because the economy has grown. This is the classic idea that the pie can get bigger. A lot of times you hear about this when it comes to business taxes.

[Valerie Ramey]

So cutting taxes typically induces firms to invest more, both in factories and in what we call intangibles, such as research and development to come up with new products or better ways of doing things. There's, there's very good evidence that there are these sorts of effects.

[Sally Helm]

And there's actually a similar argument when it comes to individual taxes.

[Howard Gleckman]

So let's say that you're somebody who is only working a part time job. You're only working 30 hours a week instead of 40 hours a week, and the tax rate's very high. And your boss comes to you and says, sally, you know, we'd like you to work another 10 hours a week. And you say, you know, I kind of add up what taxes I'm going to pay on that extra 10 hours a week. And you know, it's not worth it to me. I'D rather stay home and walk my dog or read a book. It's really not worth it to me to go to work.

[Sally Helm]

But say Congress cuts my tax rate, then maybe I feel different.

[Howard Gleckman]

You say, you know, I did the math and the take home pay now is pretty sweet, and I love my dog and everything, but, you know, it's kind of worth it to me to work that extra 10 hours.

[Sally Helm]

Maybe I even hire a dog walker.

[Howard Gleckman]

Maybe you even hire a dog walker. And that grows the economy even more.

[Sally Helm]

I worked more hours and I created a job that is growth. And this behavior change aspect of taxes, it's important in economics. Like, on the one hand, taxes are a thing to raise money. That is key. And if the government cuts taxes, they lose revenue. But taxes can also change the choices that people make about how much they work, how much money they spend, whether they start a business. And those choices taken together can affect the economy in good and bad ways. The idea with dynamic scoring is include these effects in your calculation. And if you look at the tax cuts through that lens, well, some of the cuts in the bill will lead to growth, but others don't do much for growth at all. They just amount to new deductions for certain people. So where do we land? How does this big tax cut affect growth?

[Howard Gleckman]

The official Congressional scorekeepers say that has a very modest effect. At the Tax Policy center, we've done an analysis which has essentially come to the same conclusion that in the short run, you get a little bit of a boost in economic growth. The economic growth offsets maybe 10% of the cost of the tax cut. There are other analysts who look at it and say, you know, it doesn't even do that. You know, rough justice here is to say the economic effect is going to be very small. Whether it's very small, positive, very small, negative, don't know, but it's going to be very small.

[Sally Helm]

Now, of course, there is just the argument we want to cut taxes because we don't like taxes. Whether or not cutting them spurs growth. But if we are thinking about this possible small growth effect, well, there is no world in which it covers these tax cuts. Overall, the net effect of the tax cuts is huge. They'll cost about $4.5 trillion over the next 10 years. So even if growth offset about 10% of that, we'd still be more than $4 trillion in the red. So if we're looking at our simple big bill arithmetic to balance these big tax cuts, growth alone won't do it. So next, let's go look at the big spending cuts in the last six months or so President Trump has said in no uncertain terms, these cuts would not come from Medicaid. In fact, in the bill that just passed, one of the biggest spending cuts is indeed coming from Medicaid, the program that pays for or partially pays for health insurance for poor and disabled and some elderly Americans. Kenny Malone is back with his magnifying glass and his jeweler's loop to examine the fine print of these Medicaid cuts.

[Kelsey Snell]

Yes, very small fine print. Very worth reading. We're going to go deep here is what we're going to do.

[Sally Helm]

So I am seeing that cuts to Medicaid will end up saving something on the order of $900 billion. But my understanding is that it's kind of more complicated than just simply cutting lots of people from Medicaid.

[Kelsey Snell]

Well, yes and no. I mean, to some degree, there is one chunk of the bill that essentially does cut people off of Medicaid by tightening the eligibility requirements. Now, most notably, the bill has a work requirement that you may have heard of, which means that federal eligibility isn't just tied to income anymore. Now people are going to have to work or volunteer or whatever, some minimum number of hours to also qualify. So, so practically speaking, like, for the bill, math, this is a stricter requirement and people will lose Medicaid or not qualify in the future. And estimates are that about 8 million people will lose their Medicaid eligibility by the year 2034.

[Sally Helm]

And obviously, I mean, that is just a devastating thing for the people who will lose that health insurance.

[Kelsey Snell]

Catastrophic stuff.

[Sally Helm]

Yes. I mean, the math does seem like brutally straightforward, though. It's like, okay, fewer people on Medicaid, cheaper for the federal government.

[Kelsey Snell]

Yeah. So that is, you know, one big category of Medicaid cut, but the other, a slightly smaller one that I do think is really worth unpacking, is a little mushier and has to do with something that I think people are going to hear a lot about soon called the provider tax. Have you heard this term, Sally?

[Sally Helm]

I have. And I got to imagine provider in this case means like health care provider. Like Dr.

[Kelsey Snell]

Yes. Hospitals, nursing homes, like that kind of stuff. And do you mind if we go like, deep, deep in the weeds on this? Because I think it's good.

[Sally Helm]

Kenny. I do not mind. What else are we here for?

[Kelsey Snell]

Get your bug spray. We're going to do tick repellent.

[Sally Helm]

I'm so scared of ticks this deep into the weeds.

[Kelsey Snell]

You're okay with that?

[Sally Helm]

Let's go.

[Kelsey Snell]

Okay, so let us begin with this fact, the way Medicaid money works in each state is that each state spends money on its Medicaid patients. And then the federal government matches that spending at some rate. It differs state by state. And so, like Maryland, for example, has a conveniently simple match. For every $1 they spend on their Medicaid population, the federal government also contributes $1.

[Sally Helm]

Okay, so half of the money from the state, half from the federal government.

[Kelsey Snell]

Yeah. And that's actually the lowest matching rate. The state with the highest match is Mississippi, because its population has the lowest per capita income of any state. And in Mississippi, for every $1 they spend, the federal government contributes $3.33.

[Sally Helm]

Okay, so state by state matching system set by some formula. I got it.

[Kelsey Snell]

Okay. And here's where it gets interesting. In 1989, the governor of New Hampshire realized a way to game this system. He found out about a way to make it look on paper like his state was spending more on Medicaid than it really was. And he did that by taxing more providers. You know, like taking money from hospitals and such and then basically promising to give that money back to them by respending it as Medicaid spending.

[Sally Helm]

Ah. Because if you re spend it, then it gets matched by the federal government.

[Kelsey Snell]

That's the gambit. That's the play. And so in New Hampshire, for example, they have something like a 5% provider tax on hospitals. And really what's happening is New Hampshire spends, you know, like, 100 bucks on Medicaid at a hospital, gets that $100 matched by the feds. But then New Hampshire takes back its provider tax chunk, 5% of that money, and respends a ton of it, which gets more matching money from the federal government and so forth and so forth.

[Sally Helm]

I mean, it's a good scheme.

[Kelsey Snell]

It's very clever, and it is not a secret anymore. Every single state except Alaska does a version of this, because the provider tax lets states shift even a little bit more of the Medicaid burden back onto the federal government. It is generally, by both parties, considered a messy, suboptimal way to fund a national health insurance program. But it is now the way Medicaid works. And the federal government has essentially said, fine, do this, but don't go nuts, and they have placed an effective cap of 6% on the provider taxes that states are allowed to put in place.

[Sally Helm]

Okay, I am with you. We are deep into the weeds. But I do I sense, Kenny, that the big bill might now be coming into our sights.

[Kelsey Snell]

Yes. Well, okay, so the Trump administration has specifically pointed to the provider tax as an example of, quote, waste, fraud and abuse in Medicaid. Which, by the way, some Republicans say is the rationale behind all of the changes to Medicaid. But, but specifically with regards to the provider tax, the bill that just passed does change that tax. It lowers the provider tax cap. This is essentially saying that like even that 6% tax is too much, states should rein it in. And specifically this is going to apply to the 40 states that have expanded Medicaid under the Affordable Care Act. And this bill moves that provider tax cap for those states down from 6% to 5.5% and then eventually all the way down to 3.5% in the year 2032.

[Sally Helm]

All right, so meaning I'm getting this, that those states will still be able to game the system, but just like less and less, like squeezing less and less federal matching money out of the federal government.

[Kelsey Snell]

Yep, that's it. And the spending cut here, if you want to think of it this way, with regards to the provider tax specifically, really boils down to the federal government not sending as much money to states for Medicaid, somewhere around $200 billion less over the 10 year window of this bill.

[Sally Helm]

So does that mean that states will then drop people from Medicaid?

[Kelsey Snell]

That is where it gets a little complicated and a little mushier, honestly, because it's not really a state decision who qualifies for Medicaid and who does not. That is federal law. So states will still have the same number of Medicaid patients, but they will have less federal money and they're going to have to figure it out. Do they raise taxes to make up the difference? Do they cut spending elsewhere to make up the difference? Unlike the federal government, states consider it off limits to run a deficit and borrow money to make up for that.

[Sally Helm]

All right, Kenny Malone, thank you very much for this trip through the weeds.

[Kelsey Snell]

You're welcome. Thanks for going there. Do your tick check. You know, the weeds are fun. Be in the weeds, everybody.

[Sally Helm]

Alright, checking in on the simple math of the big bill. These cuts to Medicaid are the biggest spending cuts in the bill. They come out to almost a trillion dollars. There are also cuts to food benefits like snap. And remember there were cuts to green energy tax credits, but they don't come close to covering the tax cuts which come out to about $4.5 trillion over the next 10 years. And because the tax cuts disproportionately benefit the wealthy and a lot of these spending cuts are to programs for low income People, this does boil down to a wealth transfer. The bill also does something else. We're cutting a lot of taxes and not cutting as much spending. So we're going to have to borrow money which will increase the national debt. What does that mean for you and me? That's after the break.

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[Sally Helm]

Are cut by what comes out to a net of $4.5 trillion and the spending cuts on Medicaid and other things are estimated to be about 1 trillion, then where does the rest of the money come from? It's debt. Of course it's debt. It's always debt. Mary Childs, we merely just imply the existence of debt markets and you just apparate into the studio. Thank you.

[Mary Childs]

Yes, I'm ready to go.

[Kenny Malone]

Are you ready?

[Sally Helm]

I'm ready. Let's go. Okay.

[Mary Childs]

So as you know, the government has basically two ways to pay its bills. Through tax revenue or through bonds. Debt.

[Sally Helm]

And the government has been doing this for a long time already. The US has spent more money than it takes in. It has run a fiscal deficit for the last 20 plus years.

[Mary Childs]

Yes. And over time that adds up. The federal debt, how much we collectively owe, already stands at $36 trillion total. And this bill is expected to add at least 3 trillion to the debt over 10 years.

[Sally Helm]

So you are here to tell us is this bad? Like I mean will, will it mean that we just pay for all this some other way? Like will it tank the economy? We just did a whole show, for what it's worth asking, if we can outgrow the debt so people can go back in the feed to listen to that theory.

[Mary Childs]

But spoiler alert, we can't.

[Sally Helm]

Well, Mary, all right, so today you have been trying to find out how this specific bill and even bigger and faster growing debt would affect us like as little individual economic actors going about our everyday lives.

[Mary Childs]

Yes, exactly. The Richard Scarry version. I wanted to know how this affects me personally. So I found someone who worked on economic policies up close and professional within the very government itself. Karen Dinan.

[Karen Dinan]

I am a Professor of the practice at Harvard University.

[Mary Childs]

What is the practice?

[Karen Dinan]

The practice. The practice of economic policy.

[Sally Helm]

Okay, okay.

[Mary Childs]

So for real economics, Karen worked at the Treasury Department from 2014 to 2017, putting economic theory into real world practice. And she told me the deficit can affect our normal people lives in kind of two big phases. What I will call the government phase and the private sector phase. I'm really sorry, but those are the best and only names that I was able to come up with for these two phases. You can email me if you have better ideas.

[Sally Helm]

I like them. They're descriptive, they're clear. Don't overcomplicate it.

[Mary Childs]

Thank you, Sally. And they're true. Which is important. So first, the government phase.

[Sally Helm]

Okay, government phase. So this is the deficit affecting the government. And then eventually.

[Karen Dinan]

Yes, that's right.

[Sally Helm]

Okay.

[Mary Childs]

So when a government does all this borrowing, someone out there has to lend it that money. So that's citizens and banks and other countries, central banks. And generally when a government needs to borrow more and more, the lenders demand higher interest rates to keep lending. So interest rates generally go up on new debt.

[Karen Dinan]

Now, what really matters with interest is the stock of your debt.

[Mary Childs]

The stock meaning the total amount we have borrowed, all the debt that we will have to eventually pay back.

[Karen Dinan]

Because you pay interest on the entire stock.

[Sally Helm]

Right.

[Karen Dinan]

If you have a credit card, you're paying interest on the entire balance.

[Sally Helm]

Okay. So for the US that is the $36 trillion that we currently owe plus whatever trillions this bill will add.

[Mary Childs]

That's right. And for a long time, this was not that big of a problem. We borrowed and borrowed and borrowed, but interest rates were low and for so long did not go up. So it was kind of not that expensive to keep borrowing. But then starting in about 2021, but then really in 2022, interest rates started to go up and up. So when we borrowed more new debt or just refinancing old debt as it matured, we paid more and paid more for it on more and more and more debt.

[Sally Helm]

I can see how many mores there are in that sentence and how that might add up.

[Karen Dinan]

And so one of the particular problems we're facing right now is that interest payments have become a really large share of the spending that we're doing.

[Mary Childs]

Sally, I actually have this chart that I want you to look at with me.

[Sally Helm]

Mary. Charts on the radio is my favorite thing that we do. Give me. I thought you might look at it. Okay, I'm clicking it.

[Mary Childs]

Tell me.

[Sally Helm]

Okay, I'm looking at a chart that says federal government Current expenditures. Colon interest payments. Okay, Interest. So this is a chart of what the government is paying in interest on its debt. And Mary, I'm not loving this chart. I gotta say, it just. It fills me with a certain fear because it's one of those up, up, up kind of graphs. And I gotta say it's a graph that goes up kind of really going up kind. And I gotta say it goes Sharply up after 2020. It's like up, up, ups. Starting in the 70s. Up, up, up, 20, 20. It's like jupe.

[Mary Childs]

That's right. Sally, you have hit the nail on the head. This chart shows you the growth of how much the government is spending on interest every year. And it is now so much more than ever. So that is money that it's not spending on other stuff that might be more productive or useful like. Karen has a very practical place where this would show up.

[Karen Dinan]

Every place I've lived my entire life has been a long I95.

[Mary Childs]

Oh, it's a good one.

[Karen Dinan]

So when people ask me where I'm from, sometimes I say I 95.

[Mary Childs]

I too am on Interstate 95. It's one of the ones that runs along the northeast corridor. And Karen says if the government is busy paying substantially higher interest rates, my.

[Karen Dinan]

Beloved i95, there would be more potholes. We'd be more likely to see problems with bridges. And if we're closing lanes of roads or can't repair the infrastructure the way we need to, that's going to be more hours sitting in traffic. That'd be a real headache for a lot of people in a way that seriously hurt their lifestyle pretty immediately.

[Mary Childs]

And you know what else a government provides in services?

[Sally Helm]

What?

[Karen Dinan]

Bailouts.

[Mary Childs]

Like if there's a pandemic or a financial crisis. If you a government have already issued boatloads of debt and it's become expensive for you to issue more debt, you just have less room to issue more debt for things like bailouts.

[Sally Helm]

All right, Mary, I feel like that's the government phase. And I want to hear about the next phase, which in my recollection is called the private sector phase.

[Mary Childs]

Yeah, so sorry again about the names.

[Sally Helm]

I love it.

[Mary Childs]

But yes, the private sector phase, because it is not just about the government providing lesson services. We would also feel the effects in the private sector. Businesses would feel it, and so would people like you and me.

[Karen Dinan]

When the government goes out and borrows, it's actually competing with other people who want to use that money, private firms who want to use that money for something else.

[Mary Childs]

So a small business Trying to get a loan so it can expand to build a new warehouse or a factory or whatever the lender is, is choosing between lending to that business or to the government. And of course, they're gonna ask this risky little business to pay more than the big, safe government that always pays.

[Karen Dinan]

Its bills, that'll bid up the interest rate that people are paying. So it will raise interest rates all around. So it'll raise the cost of a mortgage for someone buying a house, it's gonna raise the interest rate that people are facing on their credit card. The size of the. The interest payments every month matters. I mean, I own a home now, but if I were going into the market to buy a house, I would buy a smaller house if interest rates were higher. So that's going to have really very real effects.

[Mary Childs]

When interest rates are really high, it changes people's behavior. They buy less house and less car. They buy less of the things that they finance with loans. But also, when people spend more of their money on the interest on their houses or their cars, they have less money for other things.

[Sally Helm]

Okay, so money for fun things, Things we just want, things we love.

[Mary Childs]

That's right. So for our everyday purchases, things that we don't necessarily buy with loans, Dinner at a restaurant, a new tv, a vacation, God forbid, potato chips. Higher rates become a drag on the economy as a whole. They just start soaking up money, money that could have been used for something more fun.

[Karen Dinan]

Economists talk about this idea of crowding out, and that's what they're talking about.

[Mary Childs]

And the longer we run a deficit, the more we add to the debt, the more crowded it gets. So with this bill, we are going to get at least $3 trillion more crowded.

[Sally Helm]

Mary, thank you so much. Love to talk debt with you at any time.

[Mary Childs]

I'll take you up on that.

[Sally Helm]

Watch out. This increase in. In the deficit and the increasing amount of money that we have to spend on interest. This is the final and very important part of the overall math of this bill. Howard Gleckman walked me through where that leaves us.

[Howard Gleckman]

So you have the tax cut, and you have the economic effects of that, but you also have the economic effects of not paying for those tax cuts. And when you don't pay for the tax cuts, you increase the deficit. The government has to borrow more. It means there's less money available for businesses to borrow more. That means businesses have to pay a higher interest rate on what they do borrow, and that makes them less productive, and that slows the economy. When you net out the effect because of the fact the tax cut's not being paid for. And you look at what happens to interest rates, you may not get much.

[Sally Helm]

High interest rates hurt businesses. And as we've discussed, they also mean that the government is paying so much interest on its debt.

[Howard Gleckman]

To give you some sense of it, a quarter of the taxes that you pay in 2034, 2035, are going to go to pay for interest on the debt.

[Sally Helm]

To really understand the math of this bill, you gotta look outside the bill itself to the world that it is entering and the world now. It's really different from the way it was in 2017 when a lot of these tax cuts initially passed. Interest rates now are way higher. That context changes the math here for the worse. A reminder that Planet Money Summer School kicks off next week. Planet Money plus supporters will get early access to episodes of Summer School all summer long. They also get a discount on a live taping that's coming up. Plus, they always get bonus episodes. Sponsor free listing all of that. Thank you so much to listeners who have already signed up for Planet Money Plus. It is the best way to support our journalism and tell our bosses that you value it. If you want to join, sign up at plus.npr.org planetmoney this episode was produced by Sam Yellow Horse Kessler with help from Cooper Katz McKim and edited by Just Jang and our executive executive producer, Alex Goldmark. It was engineered by Sina Lofredo and fact checked by Sierra Juarez.

[Kelsey Snell]

A very special thanks to Jared Walzack at the Tax foundation for teaching me so much about the provider tax. I'm Kenny Malone.

[Mary Childs]

And I'm Mary Childs.

[Sally Helm]

And I'm Sally Helm. This is npr. Thanks for listening.