From eliminating taxes on tips and overtime pay to rolling back the electric vehicle tax credit to potential Medicaid cuts, President Trump’s One Big Beautiful Bill will have wide-ranging economic implications.
Sriram Villupuram, associate professor of finance at the University of Texas at Arlington, has been examining several of the bill’s major provisions.
Here’s what he had to say about some of the major provisions of the bill and their impact on Texas:
Medicaid cuts
The bill includes a $1.2 trillion cut to Medicaid and food stamps, largely by imposing new work requirements.
Villupuram sees the big headline-making part of the Medicaid cutbacks as the work requirement.
Here’s what he said about the cuts:
“Arkansas was one of the states that tried putting in work requirements, and it lasted for about a year before a court ordered them to stop. That’s the one sample we have where people can look at the data on how it worked. Unfortunately, it did not increase the number of hours people worked. Under the Affordable Care Act, we expanded Medicaid and started covering adults that are supposedly healthy and they’re still part of the workforce.
“Since COVID, we’ve been having the struggle with labor participation among working age adults and their participation dropped during COVID. Men haven’t recovered. Women have recovered since COVID. It’s come back to the level quickly with flexible work schedules, remote work, etc. They’ve all been credited with that turnaround for women. For men, it’s still a question mark. There’s still some gap from pre-COVID to today. Labor force participation is lower.
“The intention is to nudge them to go to work. One, they become productive members of society. Two, the hope is the new employer will provide them health care, health care benefits, and so they can get off of Medicaid. That will lessen the burden for the federal government. It’s sort of a win-win, if it works that way.
“A couple of impediments that have been cited are regarding why it didn’t work in Arkansas. One is, how would they let the government know that they are working? Maybe they found a job, but the websites and the infrastructure around where these folks live that are in the expanded Medicaid program — they may not have access to the internet, particularly if they live in a rural area. So a lot of them didn’t know how to fill out the paperwork to show that they were working. What ended up eventually happening is they lost Medicaid coverage. They lost health coverage.
“The saying always is: People are going to get sick, whether you have insurance or not. The question is: If they end up going to a hospital, then how are the hospitals going to get paid if they’re going to get to the hospital without any coverage? They’re going to get treated one way or the other. But the hospital is not going to get paid if they don’t have coverage. That’ll put a lot of strain on the hospital system. Mostly, this is going to have a bad impact on hospitals in rural areas and people losing coverage.”
Transportation connection
A related issue also hits home for the metroplex: transportation. Here’s the UTA professor’s take on that:
“If you tell somebody to go to work and if they don’t have transportation, that becomes a problem. If they’ve not been working for a while, no one is going to give them a loan to be able to get that used car, even. This is like a chicken-or-egg problem. On the transportation front, we’re in pretty bad shape for such a large metroplex. We don’t have comparable transportation like other large cities. If they didn’t have a job, and they didn’t have a car in the first place, it’s a nonstarter telling them to work to keep their coverage.
“In all these cases, they’re going to let go of health care coverage. The work requirement has some of these impediments that people have said in the past were some of the reasons why it’s hard to implement it. Again, on paper, the intention is good. It’s a good idea. It’s a win-win if they get off of the Medicaid rules. They become productive members of the workforce. Their employer provides them health care coverage. They’re in good shape.
“They may also not be in a place where child care is affordable. This is a third issue, if they have young children, if they can’t have affordable child care. What do they give up? Generally, they give up their health care. If that’s not there, then you know, this is a very hard thing to implement.
“The good thing with the metroplex is we have large hospital systems. Having nonpaying customers is bad for any business, but if they have a larger customer base, they can handle some of that. But rural hospitals, where the volumes are pretty small, need everybody to be a paying customer. If they’re not, then they get into trouble. Those areas may lose those hospitals for good. They can’t keep their doors open forever.
“So the bottom line, when you look at this, if we don’t close the infrastructure gap, be it transportation, child care or the communications infrastructure, such as the internet, etc., all three things should be available and affordable. If not, then eventually it’s going to hurt the hospital system. If all these things are in place, you know, there’s a chance that this, this could work.
“Further down the line, if more people lose their health care, then they will go to the public hospital, which could put a greater strain on JPS or Parkland.”
No tax on tips
This provision offers some broad relief for service workers, but Villupuram said the result could be complicated:
“The intention is to make sure that families have more money in their pocket. That’s the goal. But there are the usual issues of is everyone going to get equally positively affected by this? That’s where the rubber meets the road. But from an overall standpoint, the goal is there’s more take-home pay for people, as tips are going to be excluded from income taxes. The hope is that means, if they have a tax burden, those employees will get taxed less from a federal income tax standpoint. That means they’re going to spend that money, and it’s going to come back into the economy. If it works as intended, it’s actually going to be a good thing.
“The question is, what would be the counter reaction? How will employers treat this? Will customers change their habits? If nobody changes anything, I think overall it’s a net positive. But if customers start tipping less? I hear and read all these articles about tip creep and things like that, then that could reduce the benefits of the intended effect.
“The tip portion of the bill is going to affect areas that are more tourism and service related. So Arlington, Fort Worth, Grapevine, within that area, there’s about 135,000 workers that are in the leisure and hospitality industries.
“The hope is this would increase their take home pay, and if they are having tax liabilities, it would I believe will come back into the economy. They’re going to spend it buying more things, assuming that nothing else changes, that nobody else does anything to counteract that.”
Do you have something for the Bob on Business column? Email Bob Francis, business editor for the Fort Worth Report, at bob.francis@fortworthreport.org.
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