Energy and the One Big Beautiful Bill

As US policymaking has ground against fiscal rules with increasing frequency since 2008, the “budget fight” has become an existential trial of each successive presidential administration. This spring, the second Trump administration found its coalition fractured by a set of competing demands on fiscal policy: extending the 2017 tax cuts, which expire this year; exempting income from tips, overtime, and social security benefits; raising expenditures on the Departments of Defense and Homeland Security; and increasing the deduction on state and local taxes—all while somehow reducing the deficit to satisfy a small number of genuine fiscal hawks in the Republican Party, without touching either Social Security or Medicare, defense of which has been central to Trump’s appeal. 

Within this complex negotiation sits the centerpiece of the last government: the Inflation Reduction Act and its array of tax credits intended to accelerate the US transition to clean electricity generation and greater electricity usage. While cutting the annual cost of these credits is small in comparison to extending the 2017 tax cuts—about $50 billion raised against $350-$400 billion lost in annual revenues—the scale and scope of corporate investment in clean electricity generation and manufacturing of clean energy equipment has shaped a group of Republicans large enough to influence the negotiations. While the House’s version of the FY2026 budget all but eliminated the energy credits, on June 17 the Senate partially restored a portion of them. At the same time, the House offered tax breaks for affluent tax-payers in high-tax (i.e. coastal) states that the Senate has not. To meet congressional budget rules set in April, both chambers have sharply reduced spending on SNAP, Medicaid, and the IRA clean energy credits themselves—results that would stall progress on the US energy transition and intensify economic distress for millions of Americans. 

“The budget,” Austrian sociologist Rudolf Goldscheid wrote in 1917, “is the skeleton of the state stripped of all misleading ideologies.” In the short term, the House bill represents about $500 billion in annual borrowing between 2026 and 2028. This is more than double the $150 billion in near-term annual borrowing proposed in 2021 under the Build Back Better Act, and six times the total increase to the national debt the CBO projected for that bill over ten years—reflecting the asymmetrical politics of US deficit debates. This budget will fund lower taxes, increased military expenditures, and increased immigration policing, while eliminating access to medical care for millions. 

To walk us through how we got here, and detail the struggle inside the GOP over Trump’s One Big Beautiful Bill, Phenomenal World spoke with Ted Fertik, Vice President for Manufacturing and Industrial Policy at the Bluegreen Alliance, a coalition of labor unions and environmental groups focused on policies to foster a high-road clean economy.

An interview with Ted Fertik

JACK GROSS: Can you tell us about how the Inflation Reduction Act works? What channels did it establish to implement its goals, what have its impacts been so far, and what has changed since January?

TED FERTIK: The IRA’s provisions that affect green industry are delivered through two channels: grants and loans, and tax credits. Together with the climate-related grant programs passed in the earlier Bipartisan Infrastructure Law (BIL), like the publicly-funded EV charger program, the Biden administration created altogether—somewhere on the order of—$100 billion worth of grant programs. By comparison, the IRA’s tax credits are expected to reach over $500 billion by 2032.

There were dozens of grant and loan programs, including higher-profile initiatives like the Environmental Protection Agency’s Greenhouse Gas Reduction Fund (GGRF), the Department of Energy’s Industrial Demonstrations Program, and the expanded Loans Program Office (LPO). The GGRF was designed to give $27 billion in grants to nonprofit lending institutions—it essentially provided capital for nonprofit green banks, creating a large multiplier effect. The Industrial Demonstrations Program was about $6 billion in grants for first or near-first of a kind commercial deployments of emissions-reducing technologies in industries like steel, cement, aluminum and other energy-intensive processes. The LPO was given four different credit authorities, totaling $400 billion, to do things like credit guarantees as well as outright loans to companies.

This money was nearly all committed. While the House version of the “One Big Beautiful Bill”  includes provisions rescinding unobligated funds for IRA grant programs, the Biden administration obligated—that is, entered into contracts for—somewhere around 90 percent of the IRA and BIL grant program funds.Those contracts are with for-profit corporations, nonprofit organizations, or in some cases subsidiary government entities. The Congressional Budget Office (CBO) score on how much the House version of the reconciliation bill will reduce expenditures by rescinding the unobligated funds is not very much: for all of those programs it’s around six billion. Of that, about $2.5 billion is the LPO’s remaining lending authority. That is all that remains from the $100 billion the Congress authorized and appropriated in 2021 and 2022.  It’s still too soon to draw up the balance sheet on the grants. Some of these projects are undoubtedly going to continue. But we face a real problem in the agencies; empty Washington offices can make life very difficult for the grantees. On the loans, it does not seem like the administration is intending to interfere with deals that have closed—like the multi-billion dollar loan agreements with StarPlus, the Stellantis-Samsung joint venture in Indiana. And while the House bill was designed to prevent new loans, the Senate version—at the instigation of Energy Secretary Chris Wright—preserves some of the LPO’s loan authority, which Wright believes can help spur a new build-out of nuclear power.

JG: A lot of what we’re seeing at the agencies is targeting lower-profile, business-friendly programs. Does it tell us anything that they are putting entrepreneurs in the crosshairs?

TF: EPA Administrator Lee Zeldin, the former congressman from Long Island, seems determined to make his name on dismantling the Greenhouse Gas Reduction Fund. The Trump administration is claiming malfeasance and the right to recoup the money—basically $20 billion of the $27 billion. They are fighting to do this in court and through administrative means. Secretary of Energy Chris Wright is pursuing his vision of “energy dominance.” He comes out of the fracking industry, and aggressively propagandizes against solar and wind as intrinsically bad for the grid, because of the intermittency of their generating capacity. So he is dismantling DOE’s Office of Clean Energy Demonstrations and cancelling dozens of contracts, those with major multinational companies included. This approach is a combination of DOGE-inspired cost-cutting and ideological opposition to anything that has decarbonization as a goal. But at the same time he sees a role for nuclear, geothermal—so-called “clean firm” power—and the energy section of the Senate Finance draft very much reflects his views.

Andrew elrod: What has the geography of business investment in the energy transition looked like since 2022? Where are we seeing the commitments that have been made, in terms of states and districts?

TF: When we talk about geography, the tax credits are a bigger source of business investment than the grants and loans. For the most part, the tax credits are “as of right” as opposed to the grants, which are competitively won—meaning if you meet the requirements you are able to claim the credit, either against your tax liability or as income. They are intrinsically scalable: just like the Earned Income Tax Credit, Congress has not established a cap on the number of recipients that can claim the IRA tax credits. That applies for corporations claiming investment credits, like the 45X Advanced Manufacturing Production Credit, and individuals claiming consumer credits on residential solar panels or electric vehicles. If you’re eligible, you can claim it. 

The full suite of IRA credits was initially scored by the Congressional Budget office at $270 billion over ten years. They have subsequently proven to be much, much bigger than that: the CBO and Joint Committee on Taxation scores are now much larger, around $825 billion over ten years. That reflects a ton of uptake, from new electric vehicles being purchased, to battery, solar, and wind installation, to the development of supply chain facilities for all these where production and assembly is scaling accordingly. The deployment of zero carbon generation technologies has been much more rapid than expected in 2022. So there absolutely is a boom in clean energy taking place right now in the US. 

There’s no question that in terms of the political geography, the vast majority of the investment has flowed to predominantly Republican areas of the country. And it’s not close—credible estimates put it at about 70 or 80 percent. There are different estimates of these investments in terms of scale, but without a doubt it represents several hundred billion dollars in business spending and several hundred thousand direct jobs downstream of the IRA. 

Solar and wind tend to be rolled out in rural areas that are often more Republican—that’s where the land is. But the geography also reflects the fact that US manufacturing has become quite concentrated in the Southeast, in large part because these Republican states have “right to work” laws that outlaw union-shop contracts and weaken collective-bargaining rights. Several of the tax credits, including the key credits for deploying clean electricity, integrate labor standards into the credits themselves—especially in the form of the prevailing wage and apprenticeship bonus credit—creating a huge incentive to utilize union labor or meet union standards on the construction side. On the manufacturing side, there is no such bonus credit for hiring union labor to operate these facilities. That said, traditional manufacturing powerhouses like Michigan, Ohio, and Indiana have also seen huge investments linked to IRA tax credits, especially in connection with batteries and electric vehicles.

If you listen to what the Republican opponents of the IRA like Chip Roy are saying, they do not deny that there are jobs connected to the programs of the IRA. In May, for example, thirty-nine right-wing House Republicans—essentially the Freedom Caucus, plus some extras— signed a letter of protest that said during 2024, “solar represented 61 percent of all new electricity generation in our nation, with more expected this year,” and that wind generation “is expected to increase 11 percent” above 2023 by the end of the year. They say these shifts in the fuel mix are “because of these subsidies,” and then claim those jobs are “distortions in the US energy sector”—that the government has put its thumb on the scale in favor of otherwise noncompetitive technologies. They know that killing the credits will kill jobs, they just imagine that those jobs can be recouped in other industries. The 2023 Congress even used this rhetoric in legislation: “Repeal Market Distorting Green Tax Credits” was Title III of one of their bills. They would like to see a return to a “natural” state of market allocation.

AE: As if oil and natural gas do not benefit from dozens of industry-specific deductions—the 15 percent “depletion allowance” for “independent producers” being the most famous, but cheaper oil and gas leasing on public lands is another obvious one.1The bill passed by the House on May 22 expands IRA credits for producers of renewable diesel, ethanol, natural gas, and hydrogen.

Just this week we saw the Senate Finance draft exempt oil and gas from the minimum corporation tax, a benefit no other kinds of tax-paying corporations get.

TF: Obviously it’s a deluded view, but the point is that not even the opponents of the “Green New Scam” dispute that there is a boom in these industries going on, with a lot of investment and a lot of jobs tied to it. 

If you look at electric vehicles and batteries, nearly every player in the industry has secured very large loans from LPO. This is the same program through which Tesla once received its famous loan. More recent prominent loans include the $2.2 billion loan to the Ultium joint venture between GM and LG, focused on battery cells. GM interestingly just repaid that loan by refinancing it internally, and that was connected to three facilities, two of which are UAW-organized—in Lordstown, Ohio, and in Spring Hill, Tennessee. 

When you think of a place like Lordstown, Ohio, it’s a pretty classic case of a town with once-concentrated unionized manufacturing jobs being severely hit by decades of deindustrialization. Today, Lordstown is represented in Congress by Republicans: David Joyce in the House of Representatives, and in the Senate by newcomers Bernie Moreno and John Husted, who took JD Vance’s seat. The IRA credits provide some meaningful hope of contributing to the revitalization of a place like Lordstown. It was a big fight by the UAW to get those workers incorporated into the broader contracts the UAW has with the Big Three.

The batteries assembled at Ultium facilities like the one in Lordstown are benefiting from the 45X Advanced Manufacturing credit. Furthermore, the vehicles GM manufactures that utilize the Ultium platform are themselves currently eligible for the 30D Clean Vehicle tax credit, which has strict sourcing requirements attached to it. So the consumer-facing tax credit is providing a demand pull to these investments in domestically-made batteries by way of its sourcing requirements, and where the manufacturers respond to that demand they can claim a producer-facing credit.

This is also an instructive example because David Joyce, who does not necessarily have a history of being a vocal supporter of clean energy, and who is in a district that votes for Republicans by over 60 percent, has nevertheless publicly called for a softer touch on IRA repeal, as in a March letter by Republicans to Ways and Means Chair Jason Smith. That reflects a very straightforward political-economic impact of the IRA, where substantial investments in a member of Congress’s backyard has made them cautious about ideologically motivated policymaking that would harm those investments and jobs. 

AE: How are industries responding to the new tax and subsidy environment? Can we call it a new political economy?

TF: Basically every electric utility in the country is taking advantage of the IRA. As a result, the utility industry has been one of the very prominent voices defending the tax credits. There is a fear that repealing the Clean Electricity credits could lead to surging electricity prices in much of the country. Renewables developers are making use of technology-neutral clean energy tax credits, both the production credit and the investment credit.2Inside the Washington Beltway, the term “tech-neutral clean energy” is used for the 48E Clean Electricity Investment credit and the 45Y Clean Electricity Production credit. This is to distinguish them within the larger group of clean energy credits. In this interview, the terms “Clean Electricity credits” and “technology-neutral credits” are synonymous. And the expectation is that if these are weakened significantly, these producers will make up the difference in higher prices to ratepayers. Solar, in particular, is the cheapest form of power to put onto the grid right now, while natural gas prices are increasing and order books for natural gas turbines are filled for multiple years into the future. We are already deploying natural gas as fast as we know how; it is simply not a realistic option to substitute accelerated gas deployment for solar and wind deployment and continue to meet demand. So the utility companies are quite concerned about the prospect of surging electricity prices, which could happen more or less instantaneously.3As the Senate has taken up the House proposal, a group of Texas electricity-generating companies calling themselves the Texas Advanced Energy Business Alliance sent (<)a href='https://advancedenergyunited.org/hubfs/2025%20Folder/TX%20Tax%20Policy%20Sign-on%20Ltr%20June%2025.pdf'(>)a letter(<)/a(>) to John Cornyn asking the Senator to “preserve these key tax credits,” referring to 45Y, 48E, 25D, and 45X. “We believe it is possible to advance deficit reduction without sacrificing the cutting-edge power solutions that advanced energy businesses in Texas provide,” the association wrote, alluding presumably to deeper cuts to social insurance.

There’s a whole suite of existing and new manufacturers in both solar and EV components.  Batteries and their supply chains have accounted for the biggest share of manufacturing investment tied to the IRA. And of course, there are dozens of massive developers and energy businesses utilizing the credits. Consider a company like Entergy—a massive player in the energy space that is by no means a pure-play clean-energy developer. Entergy operates across the range of electricity generation technologies. They have been aggressive utilizers of the credits and have been defending them politically. 

Then there’s a broader set of players connected to all of this by way of procurement who have been less vocal, but who do not want the Clean Electricity tax credits or the Commercial Clean Vehicle Credits to go away. Big tech companies’ net-zero commitments, for example, are very much tied to procurement of clean energy. At a time when data centers are straining grids everywhere, making electricity more expensive is not something that they see as being in their interest. Amazon’s corporate climate commitments include hundreds of thousands of electric vehicle delivery vans. The House bill had carved out special treatment for corporate customers that signed contracts for commercial vehicles, ordered but not yet delivered before the end of this year. The Senate bill does not include any such provision, which will raise costs for corporate clean vehicles delivered in 2026 and beyond.

All of these interests have lobbied for the preservation of most or all of the tax credits. As a result, their repeal has been anything but a given, and their fate has been one of the biggest and thorniest questions the Republicans have been grappling with as they try to assemble a bill that can pass both Houses.

JG: There was some debate in the last year of the Biden administration over the degree to which renewables growth followed preexisting trends or was directly stimulated by the IRA. You’ve already demonstrated the significance of investment figures downstream of the IRA, but I wonder if you could comment on this non-IRA counterfactual, and its relationship to the political economy question.

TF: Companies are reluctant to say publicly that their business model depends on a regime of tax credits, and that their investment decisions are tied to them. So we are forced to speculate on this question. But clearly they criticize the prospect of repeal, which is all about certainty in business. You frequently hear the expression “pulling the rug out from under businesses”—meaning businesses were told that these credits were going to be in place for ten years, and so made investment decisions based on those expectations. 

More investment capital and jobs are connected to these provisions of the tax code than there were in 2022. If you look at any chart, you will see the rate of change notches significantly upward after 2022 in all of the targeted technologies. What does that mean politically? It means there are more actors in the system that want to see these measures preserved—companies with capital invested, labor unions with members in these industries, mayors, local chambers of commerce in towns and counties where capital is flowing, who don’t want to see that economic revitalization reversed. 

JG: On May 22, the House passed the One Big Beautiful Bill Act by a margin of one. How did that bill compare to some of the earlier committee text that had been released, what does it mean for the IRA, and what does it tell us about the governing coalition?

TF: What the Ways and Means Committee voted out on May 20 was a considerably more draconian set of changes to the IRA tax credits than many were anticipating—probably tantamount to full repeal. Between the Ways and Means Committee markup and the final bill passage on the House floor, the text actually got worse. 

Earlier expiration is the simplest way of reducing the credits. The House terminated the 30D Clean Vehicles credit for consumers, with a tiny carve out for OEMs that have not yet sold 200,000 qualified vehicles—they got one more year of eligibility. The Senate has since closed this, which will affect OEMs like Honda and Rivian. The 45W Commercial Clean Vehicle credit is gone. The 30C Alternative Fuel Vehicle Refueling Property credit, which is most prominently charging stations, is gone at the end of this year. The tax credit for homeowners who install clean energy technologies in their home, the 25D Residential Clean Energy credit, and the 45V Hydrogen Production credit will be fully repealed at the end of this year. Along with earlier expiration is the abruptness of the phaseout: the House bill used a “placed in service” rather than a “commence construction” standard, so projects would have to be finished before expiration to receive the credit.

Another way is increasing restrictions on “Foreign Entities of Concern” (FEOC)—provisions primarily designed to exclude Chinese companies from US clean energy subsidies. The IRA included these provisions on the 30D New Vehicle credit, but the House extended them, in ways that appear far more stringent, to the 48E and 45Y Clean Electricity and the 45X Advanced Manufacturing credits. The Senate has proposed something very similar. These will require far more extensive supply chain due diligence, and will likely reduce usage.

AE: What are the other relevant committees and players that have held sway over the budget making process? How do they relate to each other, in terms of rules and procedures, but also power politics?

TF: Let’s talk about the big picture of what the Republican Party is trying to do, because I think that’s the way to answer this question. In order to lower the headline cost of their 2017 tax bill, Republicans had a number of provisions sunset in 2025, especially the reduction in individual income tax rates. So if Congress were to do nothing, next year there would be a tax increase—1 to 3 percent across the different brackets, and around $7,000 in the standard deductions resetting. 

So first of all they want to extend the expiring Tax Cuts and Jobs Act (TCJA) provisions. They also want to reinstate several provisions of the TCJA that have already expired. They want to accomplish a whole bunch of Trump’s campaign commitments, which include eliminating taxes on tips, on overtime, and on social security. They want to satisfy a new Trump demand, which came in the wake of the auto tariffs, for being able to deduct interest payments on auto loans. They want to, in their way, expand the Child Tax Credit. They also want to meet one more of Trump’s promises, which is to at least partly reverse the $10,000 cap that they placed on the State and Local Tax (SALT) deduction, which raises a couple of hundred billion dollars a year and is part of how they paid for the TCJA in 2017. The Trump specific provisions are being designed to sunset when Trump leaves office—they are reducing their notional price tag the same way they did in 2017. They want a massive increase in funding for immigration enforcement and defense. And they want to enact all of these tax cuts and spending increases while also reducing overall deficits, which means they’re eyeing gigantic spending cuts elsewhere.

What we saw between the Ways and Means Committee bill and final passage in the House was two open threats to tanking the thing, which came from two different parts of the Republican coalition. The SALT caucus—five Republicans from affluent districts in New York, New Jersey, and California, and several more quietly backing them—threatened to tank it because the deductions on state and local taxes were too low. Meanwhile, the hardliners threatened to tank it because it didn’t cut Medicaid severely enough and left some of the IRA standing, sort of. The hardliners’ unofficial leader in the fiscal fight is Chip Roy, who is on the Budget and Rules Committees. As we saw in the last Congress, the Rules Committee killed several bills that Johnson was trying to bring to the floor.

Party leadership in the House Rules Committee ended up accommodating both of those revolts in significant measure. That is where the SALT deduction allowance expanded from what had been in the Ways and Means Committee bill. That is where they sped up when the Medicaid work requirements were to kick in, from 2029 to 2026. If Republicans had a forty seat majority, the SALT members would have been out of luck. The reason the SALT cap is there in the first place is their 2017 majority was larger. In 2025, the party could lose only three votes. That was the leverage the SALT caucus needed to get an outcome favorable to them.

As a result, the final product was even worse on IRA tax credits than what the Ways and Means reported. That’s how leadership quelled their rebellion from the hardliners.

AE: Just to put these parts in perspective: the revenue gain from repealing the energy credits is about equal to the revenue lost from the higher SALT deduction, and both are about one-tenth the revenue lost to tax cuts old and new.4According to the JCT’s estimates of the House bill, the changes to tax rates, exemptions, and deductions amount approximately to $600 billion a year in less revenue. The SALT deduction reduces revenue by about $30–$40 billion a year. Revenue raised by repealing the energy credits is about $40–$50 billion each year in 2027 and 2028.

TF: By far the biggest chunk of the House bill’s projected deficits is the cost of simply extending the 2017 tax cuts that are set to expire. $350 billion a year in lost revenue from extending the TCJA is where the majority of the One Big Beautiful Bill’s deficits are coming from. The Republicans essentially decided that since extending the existing tax cuts doesn’t increase the deficit from its present level, they can ignore that cost when evaluating whether their bill is reducing the deficit. So they only tried to find savings to match the new tax cuts and spending, at roughly $1.5 trillion over 10 years. The big question throughout this saga has been, where are they going to find $1.5 trillion in budget savings?

The GOP debates about where to find savings to offset this massive fiscal cost is revealing a very interesting set of developments in American political history. Cutting federally funded and federally subsidized healthcare—once one of the most unifying ideas within the Republican party—has now become meaningfully contentious. It’s really novel that the Republican Party nationally can no longer frame Medicaid cuts as red meat. They are contrite about it, and they are trying to hide it. Nevertheless, they’re doing it. Where the House arrived involves cutting the following over ten years: $560 billion from IRA clean energy credits, $860 billion from shrinking Medicaid, another $300 billion from SNAP, and another $100 billion and change from curtailing subsidies for the Affordable Care Act. The upshot, as the CBO estimated, is upwards of 12 million people losing their health insurance (plus another 4 million from the GOP’s refusal to extend additional ACA subsidies); and about 3 million people expected to lose food stamps eligibility. Medicaid cuts are the biggest source of savings, and repealing clean energy tax credits is in second place.

In a sign that the politics around the clean energy tax credits are in fact contentious, almost immediately after the House bill passed, we saw an unusual development. Thirteen House Republicans—all of whom voted for the bill—wrote to their Senate colleagues asking them to fix the House’s work. They focused on three specific things relating to the energy credits: transferability, FEOC, and the abruptness of phaseouts. These correspond to the most urgent demands of clean energy developers and companies connected to clean energy supply chains, including in manufacturing. At the same time, these companies also undertook a very significant lobbying effort, focused on the Senate Finance Committee in particular. 

The Finance Committee’s draft reflects this. For zero-emissions technologies other than solar and wind—battery storage, geothermal, nuclear—the clean electricity credits remain in place and transferable, not only for the full period the IRA had given but with an additional two year phaseout. The Senate removed the House’s sixty-day “begin construction” requirement. 

But in other ways the Senate bill is actually even more draconian than the House bill was: the extension of the clean energy credits specifically excludes wind and solar, which are rapidly phased out during 2026 and 2027; consumer credits for any clean vehicles are completely gone. To offset the cost of some of the restored IRA credits, Senate Finance left the lower SALT allowance in place and took an even more aggressive approach to Medicaid.

Our assessment is that the net effect of the Senate changes would be not only a significant slowdown in the rollout of clean energy technologies across the US economy, but a loss of jobs in construction, a loss of jobs in manufacturing, a pull back of investments and a significantly degraded economic picture relative to what we were looking at in 2024.

JG: What has this reconciliation struggle revealed about the GOP coalition and leadership?

TF: The bill that passed the House shows that some number of Republican members of Congress were willing to court the ire of their leadership and of Trump by publicly threatening to derail the bill in the closing stages—whether on SALT or spending cuts. But the members who had spoken out publicly about preserving the clean energy tax credits did not mount a similar revolt. Twenty House Republicans, a mix of members from swing districts and solidly partisan districts but with major investments in IRA-related industries, had publicly signed on to a couple of different letters. Some of these people were among the more outspoken on Medicaid, including Don Bacon from Nebraska and David Valadao from California. But as a group these politicians did not threaten to vote no and they did not vote no in the House. 

On the Senate side, the counterpart to House Ways and Means is the Senate Finance Committee. The chair of that committee is Mike Crapo from Idaho. Majority Leader Thune of South Dakota is an important player. And Josh Hawley has emerged in a very interesting position as someone who has become extremely vocal in opposition to cuts to Medicaid, making the argument that “these are our voters.” Lisa Murkowski, playing her traditional role of the all-purpose Senate moderate in the GOP, has pushed back on both Medicaid and the energy credits.5With respect to fiscal policy, Murkowski sits on the Energy and Natural Resources Committee and the Health, Education, Labor and Pensions (HELP) Committee, as well as the Appropriations Committee. Hawely also sits on the HELP Committee, as well as on the Homeland Security and Governmental Affairs Committee and the Small Business and Entrepreneurship Committee. On the other end you have Rand Paul, who the Republicans consider a definite no vote, because he’s a genuine libertarian fiscal hawk who doesn’t consider the House bill remotely serious from a fiscal reform point of view. So functionally, Senate Republicans have fifty-two votes, not fifty-three.

What the fight in the Senate reflects is that we’re not at the end point of them threading that needle. One popular framing that GOP leadership prefers is Hawley’s: “I don’t know why we would defund rural hospitals in order to pay for Chinese solar panels.” They want to pit the energy transition and healthcare for low-income people against each other. (Domestic manufacturing incentives in the IRA are the biggest factor in what onshoring we have seen in industries like solar manufacturing. In contrast to Hawley, the Solar Energy Manufacturers for America calls the Senate cuts “a massive gift to Chinese manufacturers” that will “end any hope of onshoring domestic manufacturing.”) 

Whatever the Senate votes on, however, will have to go back to the House. There Chip Roy is already saying the Senate’s changes are too big of a concession to clean energy producers. And while the Senate bill specifically excludes solar and wind from its extension of the clean electricity credits, it hasn’t restored any Medicaid funding. And because no Republican senator is in favor of a higher SALT deduction—because there are no Republican senators from places where SALT matters—the SALT Republicans in the House immediately rejected what Senate Finance produced. 

Numerically, there were enough Republican IRA members in the House to play a similar role as the SALT caucus. But they were not willing, individually or collectively, to exercise that leverage. This has been one of the challenges for the clean energy industries and advocates throughout the tax fight. Public red lines on SALT forced a direct negotiation with House leadership and significant concessions, but there have been no public red lines on clean energy credits and no negotiations resulting in concessions. This is in part because the clean energy Republicans are part of a larger group in the House that also includes all of the SALT caucus Republicans. For these Republicans from affluent districts in coastal states, it was SALT or IRA, and they chose SALT. But if any of the larger group of IRA Republicans are willing to trade SALT deductions for keeping the IRA credits, they haven’t come out publicly calling for that. For them to do so would threaten to cleave SALT out of their coalition. 

It would be wrong to say the political economy coalition for clean energy development isn’t there. We have witnessed the emergence and partial maturation of a clean energy coalition that does have power. What we’re seeing is how powerful it is relative to other political economic coalitions, as well as the ability of certain groups within the Republic conference to build majorities. Under these conditions, it is not an all-powerful actor in the decision-making of the key players in Washington.

AE: Even with all the other spending cuts—on agriculture, K-12, and higher education, federal employee pensions—federal borrowing under H.R.1 would be $2.4 billion over ten years according to the CBO. At the risk of sounding naive, has this level of borrowing been the plan all along, or aren’t there any chamber rules about deficit spending in play?

TF: What they can’t do is increase the deficit by more than they said they were going to increase the deficit in the initial budget resolutions. 

It becomes very challenging for them if the CBO scores on the proposed changes don’t fall within the instructions that the budget resolutions gave to the respective committees of jurisdiction. If the CBO scores don’t match up, then when it comes to the Senate there can be a point of order. And the Senate parliamentarian will say that this does not comply with the rules for budget reconciliation. To move forward in that situation, in the face of such a ruling from the parliamentarian, the Senate will have to overrule its parliamentarian. That’s generally considered to be equivalent to eliminating the filibuster altogether. This is a step that the GOP is very reluctant to take. 

So they have been quite serious about writing legislation that will meet the instructions that they set for themselves. The cuts to IRA, Medicaid, and food stamps are absolutely real cuts. Because, as it stands, they don’t have fifty senators at yes, they are giving themselves a little bit of flexibility on the timeline. Previously they planned to pass the bill and have it on the President’s desk by July 4, but now that’s been pushed—the Senate needs to pass the bill by July 4 and the House and Senate need to agree to have it on the president’s desk by August recess. But if any of the fractures within the Republican Party persist, or can’t resolve, then they do risk hitting the debt ceiling clock, which strikes midnight some time in August. Then they have to negotiate with the Democrats—over the debt ceiling increase or over the TCJA extension. They might dare the Democrats to cause a default, but they probably don’t want to. Thune hopes to get a bill to the floor by the last week of June. We have no idea if they’ll actually resolve all their issues by then, or if they’ll get snagged by the parliamentarian. And if they do find consensus we don’t know what it will look like on those core questions of Medicaid, IRA, and SALT.

AE: Let’s end with an extremely broad and speculative question: how do you see this fight over fiscal policy in its longer sweep? We’ve seen versions of this three times: Reagan came in and exploded the deficit by cutting taxes on top incomes and corporations. It was very controversial at the time, and the Democrats responded by becoming a party of fiscal hawks. George W. Bush came in and did his tax cuts on capital gains and top individual incomes, again exploding the deficit, and introduced this forecasting fiction of the cuts expiring in the future. And then Donald Trump in his first administration in 2017 did the same thing, for corporations mostly. One could argue “oh, this is just the pattern, and all of the drama that we’re witnessing right now is myopic and forgetful of the fact that we’ve done this before.”

But at the same time, the American economy and America’s place in the world have changed since the 1980s. The strategy back then of funding huge fiscal deficits with sky-high interest rates, of using a strong dollar to preserve American power, seems to be in direct conflict with the administration’s professed trade policy and its relationship to the Federal Reserve. The brief, six-hour run on the dollar on Liberation Day and the increase in US bond yields seem to indicate a real resistance from the banks, hedge funds, and other large-scale holders of US debt to Trump’s planned budget deficits—whether they lead to $2.4 or $4.5 trillion in new debt. Is the ability of the United States to borrow becoming constrained by the other elements of the coalition?

TF: From my current perch, I’m not positioned to offer a verdict on the credit worthiness of the US government. But here is one thing I can say. The bulk of this fight inside the GOP is because of the commitment to preserving the 2017 changes to tax rates, whose benefits overwhelmingly flowed to the richest Americans. Any departure from this has proved to be a complete non-starter. It was an absolute priority of the GOP to not only extend, but also expand, the estate tax exemption: for the holders of very large fortunes to not have to pay any tax. This legislation enshrines the GOP’s commitment to tax breaks for billionaires as a core part of their approach to governing. The world has changed in many ways, but that remains, unalterably, a truth about how the world works.