One Big Beautiful Bill Breakdown, Part II with Elias Tsapelas
Susan Pendergrass is joined again by Elias Tsapelas, director of state budget and fiscal policy at the Show-Me Institute, for Part II of their conversation on the sweeping federal legislation known as the “One Big Beautiful Bill.” They unpack what the bill means for Missouri taxpayers, including changes to the standard deduction, tips and overtime, education savings accounts, and higher education policy. They also dig into the bill’s broader fiscal impact, from the growing federal deficit to the implementation challenges facing state governments.
Timestamps
00:00 Exploring the One Big Beautiful Bill
04:58 Tax Implications for Missourians
10:20 New Savings Accounts for Children
12:07 Changes in Higher Education
18:09 Federal Deficit and Debt Concerns
Episode Transcript: One Big Beautiful Bill Breakdown, Part II with Elias Tsapelas
Susan Pendergrass (00:00)
So I guess it turns out that the One Big Beautiful Bill was too big for us to talk about in one podcast. Elias, thanks for coming back. I realized after we stopped recording that there’s so much in there we didn’t even discuss. We barely even really got into it. So let’s talk about more of the One Big Beautiful Bill because it’s huge—hundreds, at least hundreds of pages long. And I can’t believe the people who voted on it read it through carefully. Now, as you’re going through it and learning things, I’d love for you to explain some of it to me.
Starting with—how does the no tax on tips and overtime work? I’ve heard a lot about this. I know it was a campaign promise. So is it true that if you’re waiting tables now and you get a few hundred bucks a night in tips, you don’t have to pay tax on it now?
Elias Tsapelas (00:51)
In theory, yes. Now, it’s not clear if it’s going to be something that impacts Missouri tax liability. It sort of impacts the federal tax code a little differently than the increased standard deduction and some of the other changes. So it might change some federal tax liability, but unless Missouri’s legislature changes some stuff, it’s not going to immediately impact Missouri taxes.
Susan Pendergrass (01:16)
But why—do you have to itemize to do it?
Elias Tsapelas (01:19)
No. Basically, Missouri has rolling conformity with the federal government. Missouri takes its gross income from the federal government, and the tax on tips and overtime piece isn’t going to impact the gross income calculation. So it may or may not become an issue in Missouri.
There’s also a big open question here about how much income tip workers are actually claiming, and how much that will change if you say it’s not taxed—because if they weren’t declaring it before, we don’t really know what the change will be.
Susan Pendergrass (02:05)
Yeah, so if you walk home with a wad of cash, you’re not necessarily going to add it up and write it down and claim it.
Elias Tsapelas (02:09)
It still might not be worth declaring all of it. But if Missouri brings it into the state income tax code, it could cost quite a bit of money. There are quite a few tax provisions here—especially on corporate tax—where we really don’t know how much it’s going to cost, but it’s probably going to be significant. There’s full expensing, depreciation, all kinds of things that are going to change both federal and Missouri tax liability. And then there was the standard deduction change we mentioned last time.
Susan Pendergrass (02:47)
Okay. So one thing that does impact Missourians is our tax credit scholarship program, where you can donate to a scholarship-granting organization like the Archdiocese of St. Louis, and they give out scholarships. Right now, you can get a Missouri state income tax credit for that—up to half of how much you owe the state. And now there’s a new program where you can take a federal credit of up to $1,700 for donating to these organizations.
You can’t get credits for both on the same donation, but you could donate up to half your tax liability and get the Missouri credit, and then separately donate $1,700 and get the federal credit. I know there’s a lot of rulemaking still to come, and I also know this program doesn’t start until January 2027. So it won’t affect people’s returns until April 2028. But—how do you think that’s going to work? Do you have any idea based on what you’ve read?
Elias Tsapelas (03:54)
Well, Missouri has to opt in first, right? I think the first step is getting the rules out and seeing which states opt in. I would assume Missouri will. The hope is that this becomes something more people understand and take advantage of.
In Missouri, even though we have tons of tax credits that people do use, it takes a while to build it into tax preparation tools like TurboTax. So you kind of have to know what’s going on. Maybe once the federal piece is in place—and there are also changes to the child tax credit—that’ll help.
Susan Pendergrass (04:24)
Spread the word. How’s that changing?
Elias Tsapelas (04:51)
Some of the temporary provisions from the 2017 bill are now made permanent. One of the things the One Big Beautiful Bill does is take temporary changes and make them permanent. We’ll see in a few years how many of these stay.
Susan Pendergrass (05:10)
So the child tax credit is now permanent?
Elias Tsapelas (05:13)
Yes. The changes made in 2017 are now permanent. It’s higher now, and there’s more of it that’s refundable. There’s still an income threshold to get the maximum amount. I think there are going to be a lot of tax credit changes. The bill also got rid of a lot of renewable tax credits. So there are a lot of changes to tax policy for both businesses and individuals. I think people will need to start thinking about their Missouri taxes a little differently, at least for the next few years.
Susan Pendergrass (05:59)
Another piece is the savings accounts for children—kind of like IRAs for kids. I’ve read that anyone born after January 1, 2024, or maybe anyone currently under age 18, is eligible. The IRS has to open the accounts, and you need a Social Security number. For kids born between January 1, 2024, and 2026, the government deposits the first $1,000.
Elias Tsapelas (06:52)
Yeah. What I was trying to figure out is how these differ from 529 plans. I think these will be harder to withdraw from. They do come with tax benefits for employers and others contributing, but taxes will have to be paid when the money comes out.
Susan Pendergrass (07:25)
Yes—capital gains. With 529s, the money goes in pre-tax and comes out tax-free if used for education. These accounts are less flexible. You can take money out for education, a house, or a business, but otherwise there’s an early withdrawal penalty plus capital gains. It feels gimmicky, since the government only deposits $1,000 until 2028 when the program expires.
But for many low-income kids, this could be their only savings. It’s meant to help those who wouldn’t have a 529. They were originally going to be called “Invest in America Accounts,” but they’re now called “Trump Accounts.”
Elias Tsapelas (08:50)
I’m curious to see if the $1,000 is the only money ever deposited into these accounts for most people. It may not be worth putting in more, but even with tax obligations, it’s still free money.
Susan Pendergrass (09:27)
Right. You turn 18 and have $10,000—it’s not nothing. But some worry that a future Democratic president with control of Congress could expand the program—like depositing $500 annually for anyone under 18. It starts to look like a form of universal basic income. But I suspect it’ll go away—it feels gimmicky.
Elias Tsapelas (10:16)
I’m curious if the government will make it easier to use for college or similar expenses. There are a lot of higher education changes in the bill too. As someone with student loans, I’m getting emails every day about them.
Susan Pendergrass (10:33)
Yeah. So tell me—what are the changes to higher ed?
Elias Tsapelas (10:43)
Well…
Susan Pendergrass (10:46)
I’ve heard it might hurt community colleges, but I don’t know why. Do you?
Elias Tsapelas (10:49)
There are new caps on loan amounts and some income-based repayment plans are being eliminated. For example, the SAVE repayment plan created by the Biden administration has been tied up in court. Interest collection is resuming, but payments aren’t due yet. Borrowers need to switch plans, but the old ones are gone. The new plan tries to prevent negative amortization, but it’s still unclear how well that will work.
Grad students will be able to borrow less. The government wants loans repaid more quickly. After five years of paused payments, there’s a huge administrative burden now to unwind all of this.
Susan Pendergrass (12:11)
I know—since the pandemic.
Elias Tsapelas (12:17)
Exactly. There’s going to be a big process for certifying income and re-establishing payments. Colleges are nervous—lower borrowing limits could change students’ decisions. And I don’t know if the federal government is prepared to roll all of this out smoothly. I still need to re-set my auto-withdrawal.
Susan Pendergrass (12:56)
Yeah. It feels like we have to wait six months or a year to see what actually happens. Even the work requirements for SNAP and Medicaid were pushed out beyond the midterms. So while people are celebrating or panicking, a lot of this is still TBD.
Elias Tsapelas (13:26)
Yeah. And when people talk about “cuts,” especially to Medicaid, they’re mostly referring to ten-year projections. But a lot of the actual cuts are back-loaded. The benefits hit first—then the cuts. And some of those cuts may never happen. There’s also a big expansion of health savings accounts. People with bronze marketplace plans or direct primary care arrangements could use them, but rules still need to be written.
Susan Pendergrass (14:38)
I read there might be fewer subsidies, maybe higher premiums?
Elias Tsapelas (14:44)
Depends. There’s going to be a bill later this year to debate extending the enhanced COVID-era subsidies. But those subsidies created a kind of shadow market—shady dealers signing people up for plans they didn’t even know they had. About 2 million people were enrolled in multiple subsidized marketplace plans last year. So now there’s a push to reintroduce some “skin in the game.” But we’ll see what ends up mattering or going into effect.
Susan Pendergrass (16:04)
And our senator is already trying to undo parts of the bill he voted for.
Elias Tsapelas (16:08)
Yeah, especially the provider tax piece. That would help rein in spending, but the cuts don’t go into effect for several years—giving time for backtracking. If none of the pay-fors happen and only the expensive parts do, this bill just becomes even more costly.
Susan Pendergrass (17:08)
What does this bill, even optimistically, do to the federal deficit?
Elias Tsapelas (17:15)
I still need to see estimates, but we’re looking at adding at least $4 trillion to the deficit. Possibly more, depending on what’s made permanent.
Susan Pendergrass (17:53)
I thought Republicans cared about balanced budgets. This feels irresponsible. What do you think?
Elias Tsapelas (18:08)
It’s a lot easier to say you’re for fiscal responsibility than to actually do it. With Medicaid, people say cut waste—but cutting funding means cutting payments to hospitals, doctors, and nurses. And those tax cuts were always going to be extended. Every person taking the standard deduction is getting a bigger deduction. That costs money.
The real long-term budget problems are in Medicare, Medicaid, and Social Security—none of which were addressed. So someone will have to get back to those eventually.
Susan Pendergrass (19:48)
Yeah. Social Security’s trust fund is going to run dry soon—maybe within 10 years. The numbers are so big, it starts to feel imaginary. People can’t wrap their heads around what it would take to have a balanced budget. Both parties just keep giving stuff away, so you’d be foolish to sit on the sidelines.
Elias Tsapelas (20:24)
Yeah—it’s just different groups they’re giving to. This bill was very expensive. And I think future efforts will make it even more so by eliminating what little cost savings exist.
Susan Pendergrass (21:03)
The SALT deduction, for example—capped at $10,000 in 2017, now up to $40,000. That’s a $30,000 swing. For Californians, that’s huge.
Elias Tsapelas (21:27)
Yeah, and the benefit mostly goes to higher-income people. Even in Missouri, some homeowners might benefit—but it mostly helps the coasts. And it gives high-tax states more room to raise taxes, since the federal deduction cushions the blow.
Susan Pendergrass (22:19)
Exactly. Crazy stuff. Well, I think we’ve covered a lot. I won’t make you come back again, but there’s so much detail—it’s not really what either side thinks it is.
Elias Tsapelas (22:45)
I agree. Especially with Medicaid and SNAP. And states will carry a big burden implementing this. Some will do it well, some will fight every piece. There’s going to be a lot of news as this all rolls out.
Susan Pendergrass (23:46)
Totally. Not directly related, but recently I’ve met people surprised by the real ID requirement. It’s been around for 10–15 years, and Missouri resisted it. Some states just don’t want to jump into federal programs.
Elias Tsapelas (24:04)
Yeah—I’ve seen signs about it at TSA forever. Always “effective in 3 months,” then postponed. But it finally happened.
Susan Pendergrass (24:11)
Right. And this summer, people are finally getting real IDs. Missouri was one of the last to implement it. So I don’t expect the state to jump on many of these changes either. But there’s still plenty of time to talk about it all again.
Elias Tsapelas (24:28)
Yes.
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