By Greg Ganske,

July 18^th, 2025

Now that the Big Beautiful bill has passed, Republicans in Congress want to extend the Tax Cuts and Jobs Act (TCJA) of 2017 while at the same time not adding more $trillions to the national debt. The Congressional Budget Office has found that extending the tax cuts would probably stimulate the economy in the short run but possibly shrink it in the long run. Both parties know how important it is to grow the economy to increase government revenues.

If Congress doesn’t extend the TCJA, the expiration of many of the provisions on Jan 1, 2026, will lead to higher taxes. According to the Urban-Brookings Tax policy Center, Americans’ federal taxes would rise on average about 7.5% (an increase of $2,100) on 68% of Americans. Conversely, those in the bottom 40% would see 2.8% to 3.3% increases in after tax income and those in the top 20% would see 3.8% increases in after tax income in 2026.

If the TCJA is not renewed individual tax rates will increase, standard deductions will decrease, and the child tax credit will expire. More taxpayers will be subject to the Alternative Minimum Tax (AMT). Small businesses will face higher tax rates and many provisions benefiting businesses will expire. Higher taxes will lead to decreased consumer spending which slows economic growth.

Decreased business investment will cause decreased economic and job growth.

In the short run, the renewed TCJA should result in economic growth higher than if it isn’t renewed which will result in increased government income. However, if in the long run, this tax renewal results in significantly increased national debt, many economists predict higher interest rates for consumers, business and government interest payments which are ballooning. This, ultimately, could shrink the economy. How one views this bill’s renewal without concomitant spending cuts depends on how one views short-term effects versus long-term consequences.

Conservatives, especially in the House, want to cut more spending to balance the decreased revenue of maintaining lower taxes and are leery of creating new revenue losses such as not taxing tips.

Democrats say the solution is simple: just increase taxes on “the rich.” Facts make this problematic. Unless the middle class is defined “as rich,” the numbers don’t work. Based on recent data from the IRS, the top 1% of earners already pay 40% of all federal income taxes. On average those in the top 1% pay over $560,00 in income taxes yearly.

The top 5% account for 60% of federal income taxes and the top 10% (those who make at least $175,000 are currently paying 72% of the national total. By contrast, the bottom 50% of earners (with incomes below $50,000) pay just 3% of all collected federal income taxes which is an average of 3.7% of their income. These stats are on federal taxes and don’t count the additional burden of state and local taxes.

A paper from Manhattan Institute’s Brian Riedl outlines limits on taxing the rich. He examines ways to raise revenue from high income Americans and estimates that only 1% of GDP over 10 years could be raised from increasing taxes on the rich. Increased taxes would cause wealthy individuals to reduce paying increased income taxes through various investment and management strategies, leveraging business and expenses, increasing estate planning, maximizing retirement contributions, deferring income, and working less to minimize their incomes. A joint filing couple might decide to have one retire instead of being boosted into the next highest bracket.

This brings us to reducing federal spending. Social Security and Medicare are off the table for now but in a matter of years a bipartisan deal to shore up the finances of each will be necessary. That leaves Medicaid which costs the federal government now more than national defense and veterans benefits, and interest on the debt. Healthcare is the largest category of federal spending (“GOP must cut Medicaid now. Or risk Debt crisis and devastating cuts later.” Michael Cannon, Cato. Des Moines Register May 21, 2025.).

I cared for Medicaid patients, and I served on the Congressional Committee with jurisdiction over Medicaid. There are ways to trim about $600 to $800 billion from Medicaid over the next ten years without hurting the poor women, children and disabled for which the program was originally intended.

Medicaid provisions will require able-bodied adults without dependents on Medicaid without dependents to work 80 hours a month. In 1996 the GOP and Bill Clinton passed similar work requirements for the able bodied on welfare and the bill was a big success. The federal government picks up 90% of the cost of these able-bodied adults under the Affordable Care Act while paying 50-70% for pregnant women, the blind and other disabled. Why should it pay more for able-bodied men who don’t work? Illegal immigrants will not be allowed into Medicaid as this is a program for citizens. There will be improved checks on Medicaid eligibility.

Nearly all states including Iowa have been using so-called “provider taxes” on hospitals and then turn around and use this money to increase hospital reimbursement. This increases federal matching dollars. States have used provider taxes because a change in federal rules in 2017 allowed states, through private insurance companies that manage state Medicaid programs to increase payments to hospitals to the extent that hospitals can get payments similar to what private insurers pay. The federal government picks up most of the tab. Sometimes states use the extra payments for things other than healthcare in their budgets.

How does this work? If a hospital in Iowa pays $100,000 in provider taxes, Iowa can use its “state share” to nail down an additional $200,000 in federal matching funds resulting in a total of $300,000 to be used for increased Medicaid payments to hospitals (according to Medicaid and ChIP Policy.gov.) For example, a hospital in Louisiana paid $8.5 million a year in provider taxes and gained $24 million in extra payments. As a former federal officeholder, I consider this to be a scam.

States shift this cost to the federal government because it can just be added to the national debt while the states themselves usually have balanced budget requirements. The practice is like buying a fancier car and someone else paying the difference.

The Congressional Budget Office estimates that about 7.8 million fewer Americans won’t have health insurance by 2034 because of these proposed Medicaid changes. This is how the CBO broke this down: 4.8 million won’t qualify with the bill’s work requirement, another 1.4 million don’t meet the citizenship and immigration requirement, and 1.6 million will have access to other forms of subsidized coverage such as Obamacare exchanges. The Affordable Care Act significantly raised the income levels that qualified for Medicaid. Many are working and have access to their employers’ health insurance but choose not to pay a share of the cost of their health insurance like most Americans do.

Hospital associations love the provider tax (since when does anyone love taxes!) and try to scare people about this change in funding by raising the specter of small town and rural hospitals closing. I grew up in a small town and know its importance to the community. However, these proposed changes are not going to cause Iowa’s rural hospitals to close.

Iowa currently has 90 rural hospitals and 85 are designated Critical Access Hospitals (CAHs) by the Centers for Medicare and Medicaid services (CMS). They already receive extra Medicare payment to help them stay financially viable and to provide essential services to their communities. They are reimbursed for the actual costs of providing services even if they have small patient volumes. In addition, the bill coming out of the Senate supplements these hospitals with $50 billion.

According to the Committee for a Responsible Federal Budget and the CBO, the House version would increase the national debt by $3trillion over ten years and the Senate version would increase it by $4trillion. I personally think this bill should both cut back the tax relief and find more areas to reduce government spending. However, politics is the art of the possible not the perfect.

This is the best chance our country has had since 1995-200l when I served in Congress, and we actually reduced the national debt. Where there is a will, there is a way. We must figure out how to grow the economy and reduce the rate of government growth spending. Hopefully, there will be rescission bills to follow. Otherwise, we face perilous economic times when the bill comes due and can’t be magically written off as national debt.

There is no free lunch.

-30-

Greg Ganske, MD, Member of Congress (ret), is a retired plastic surgeon who cared for breast cancer patients, children with birth defects, farmers with hand injuries, and burn patients. He served Iowa in Congress from 1995-2003.