It was only a matter of time before House Republicans stepped on the big landmines buried under the landscape of reconciliation. For months, GOP leaders had been tiptoeing around the tripwires, desperately trying to keep the fragile peace. But this week, with the clock ticking down to House Speaker Mike Johnson’s (R-La.) self-imposed Memorial Day deadline, there was nowhere else to step but smack-dab onto the most explosive debate of the president’s “big, beautiful bill.”

For Johnson, who had to be dreading this part of the negotiations, finally getting his 220-member family to sit down and slog through the sticking points on Medicaid reform is a feat in itself. Whether he can cobble together a unified majority at the end of it is the $1.5 trillion question. Part of his headache, as hardline conservatives are quick to point out, is that moderate Republicans are about as enthusiastic about reducing the deficit as their big-spending Democratic counterparts. Especially if it involves paring down bloated programs that Democrats are crying wolf over.

In a two-hour meeting Tuesday night, the collision course Republicans have been on since the 2024 elections finally came to a head. By the end of it, about a dozen GOP members from deep blue states seemed to emerge victorious, somehow managing to persuade the speaker to back off of two pools of taxpayer dollars that were ripe for reform: Medicaid’s Federal Medical Assistance Percentage (FMAP) and the state and local tax deduction (SALT). For the swing-state Republicans, it was a coup, but one that came at a very steep price.

If those programs are off limits for a major overhaul, House Freedom Caucus members warned, Republicans have lost the biggest bites of the apple when it comes to Medicaid savings. Some experts estimated the changes to both FMAP and SALT could be worth as much as $600 billion of the GOP’s $880 billion target. And frankly, conservatives worry, they’re running out of places to cut. No one understands that better than Mike Johnson, who gave his word during the war over the budget framework that the House would find at least $1.5 trillion in savings in the final bill. And yet, in this “ultimate group project,” as some are describing the reconciliation package, he had little choice.

The problem for the speaker is the same one that’s given him nightmares for the last year and a half. “[H]e can’t please the moderates without risking an uproar from conservatives. And vice versa,” Punchbowl News’s reporters point out. It’s the “dynamic that’s plagued the last three Republican speakers. Moderates help give Republicans their majorities. Yet they’re often forced to swallow conservative policies that don’t fit the political makeup of their districts.”

Unfortunately for everyone, these concessions only make the path to enacting Donald Trump’s agenda that much murkier. Somehow, Republicans have to find a way to pay for the extension of the president’s 2017 tax relief — or else, Johnson cautioned, everyone is going to have “an increased tax amount [of] $2,000 to $3,000 per family. That’s what’s going to happen if we don’t make the tax cuts permanent.”

Now, as Johnson and his committee chairs scramble to come up with a Plan B to find the dollars they need to offset those costs, even he’s had to adjust his thinking — and his calendar. “It just made sense for us to push pause for a week to make sure that we do this right,” the speaker told reporters Tuesday. Instead of rushing the process, the thorny mark-ups that were scheduled for this week have been pushed off until leaders can find a solution that pleases both sides. “It’s going to take a lot more of these kinds of conversations, ultimately, to get to an understanding that 99% of the House Republican Conference can agree with,” Rep. Nick LaLota (R-N.Y.) admitted.

So what exactly are the programs that were taken off the table? The short answer is a hugely complicated web of payments, tax caps, and reimbursements that have been abused since Barack Obama expanded Medicaid to people who had no business being on it. But there’s a lot more to these four-letter acronyms (which are more like four-letter words to fiscal hawks).

State and Local Taxes (SALT)

“For as long as Americans have paid federal income taxes,” Bloomberg explains, “they’ve been able to subtract some of what they pay to their state and local governments from their taxable income. This federal deduction for state and local taxes — the SALT deduction, for short — has a big influence on how the tax burden is divided. It tends to help taxpayers in wealthier, more urban states, where sales taxes are higher and real estate costs more.” Back in his first term, President Trump limited the deduction to $10,000 in every state.

With that cap set to expire, GOP moderates (especially the ones from wealthier blue states like New York, New Jersey, California, and Maryland, where things like property taxes and the cost of living are much higher) want to raise the deduction to anywhere from $20,000 to $100,000. Most conservatives would rather keep the number where it is or eliminate the deduction altogether. After all, most of them represent people who would never be able to claim that write-off. (Only 10% of Americans who itemize their taxes do.) Not to mention that expanding the cap would cost money that the government doesn’t have.

“Lifting the SALT cap to $15,000 for individuals and $30,000 for couples,” House Republicans have warned, “would cost around $500 billion relative to extending Trump’s expiring tax cuts.” Enter the fiscal hawks’ outrage. Instead of finding cuts, moderates are finding ways to spend even more. Still, Johnson vows, “We’re going to find the equilibrium point on SALT that no one will be totally delighted with, but it’ll solve the equation, and we’ll get it done.”

Federal Medical Assistance Percentage (FMAP)

Heads collectively exploded when Johnson was asked about a far more egregious practice: Medicaid’s FMAP. When reporters pressed the speaker about changing the federal cost share, the Louisianan replied, “No. … I think we’re ruling that out as well, but stay tuned,” he said.

This debate goes back even further, all the way to the Obama administration when Democrats grossly expanded the government’s health care program to entire populations of previously ineligible, able-bodied Americans. Thanks to that White House and Joe Biden’s, millions of people have flooded the Medicaid rolls, most of whom aren’t seniors, children, or disabled — and who, by their very participation — are robbing truly needy people of the care and benefits they deserve. That problem only ballooned under COVID, as Biden bogged down the program with financially-strapped — but otherwise unqualified — Americans.

Now, years later, Medicaid is struggling to keep up with the burden of enrollees it was never meant to serve — pushing legitimate patients with disability or chronic illnesses to the sidelines.

Republicans have been clamoring to radically overhaul the system and return Medicaid to its original parameters, saving taxpayers billions of dollars in the process. But states have been reluctant to do that because of this FMAP loophole that actually encourages them to grow the program beyond its original purpose. As Stefani Buhajla explained in National Review, the deep dark secret of Medicaid is that its federal funding actually “undermines the program’s core mission.”

Right now, the federal government reimburses a whopping 90% of expenses of those “working-age, able-bodied adults” who were folded into Medicaid under Obama, “regardless of the state’s level of wealth.” In other words, “the federal government provides more-generous support for less needy individuals and comparatively less support for those who are in greatest need of care,” Buhajla emphasized. Those same states don’t receive anywhere close to that reimbursement for the participants who belong in the program.

“It’s nuts,” Family Research Council’s Quena González told The Washington Stand. “It incentivizes states to continue to expand services and eligibility and availability — but only to the expansion population. To those who are disabled or who truly do need some sort of help like this, the states are less incentivized.”

But, he insisted, the FMAP itself is broken, because no state is reimbursed at less than 50%. It’s a great deal for them. “Every state is robbing the American taxpayer by reaching into the till. But they’re hyper-incentivized to do this when they expand beyond the traditional Medicaid populations. See the perverse incentive here? If you’re a blue state Republican from New York or New Jersey, and your state expanded Medicaid by going into these ineligible populations, you get a 90% federal match.” If your colleagues want to cut that, González explained, “it’s not going to be popular back home. So now you’re over a barrel. You’re wedded to this lopsided expansion category — which, by the way, penalizes states that refused to expand Medicaid like Florida and Texas.”

Instead, he continued, Florida and Texas are put in the position of subsidizing the bad choices of leaders in the northeast. It creates this impossible situation where liberal and moderate Republicans from these blue states are “fighting tooth and nail to keep a mega-subsidy that never should have existed.” And the conservatives’ point is that just by returning Medicaid to its original parameters, Republicans could probably save hundreds of millions of dollars.

The House Freedom Caucus understands this. There are more able-bodied Americans “on Medicaid now than any other group,” they stressed, “which means the neediest Americans get lower priority. … This is why Medicaid spending has skyrocketed 51% in the last 5 years alone. This isn’t ‘cutting benefits,’” they reiterated in rebuttal of the Democrats’ claims. “We’re trying to fix the program and protect the most vulnerable.”

On the Senate side, Dr. Roger Marshall (R-Kan.) agreed. “We have over 90 million people on Medicaid now. Ninety million,” he repeated on “Washington Watch” Monday. “It was meant to be [for] those who need that help, [who] need that hand up. It was meant for folks in a nursing home [who] maybe that can’t afford nursing home care or folks with a disability. The poorest amongst us is who it was meant for.” And yet, he shook his head, “It’s on a rocket ship as far as the amount of money we’re spending on it.”

Johnson’s Dilemma

“But if you take FMAP reforms off the table and also raise the SALT cap, where do you look for savings?” González wonders. “You can’t say, as a House moderate, ‘We get 100% of everything we want, or we take our marbles and go home.’ At some point, we have to tell them, ‘We can’t afford all of this. We can’t afford the president’s tax cuts, the push for border security and defense, and also make the tax cuts permanent.’ Everyone is realizing that there’s just not enough money to go around and do everything they want to do.” Not only are we “robbing from our children,” he argued, “but we’re playing fast and loose with the truth about where we are financially.”

While there are still ways to salvage some reforms — new work provisions for the Medicaid expansion category is one — the speaker is walking a tight line with conservatives, who are very aware how much they’ve given up already. “I don’t make promises that I can’t keep,” Johnson underscored, presumably about his pledge to conservatives to cut spending. “This is a consensus-building operation,” he implored. “We’ve been working really hard to take all the input and find that kind of equilibrium point where everybody is at least satisfied. Some people are not going to be elated by every provision of the bill. It’s impossible.”

And let’s be honest, Marshall piled on, “It’s an uphill battle. There’s no doubt about it.” But, he insisted, “I have a lot of confidence in Speaker Mike Johnson [and Rep.] Jodey Arrington (R-Texas) over there on the Budget Committee. Those folks, I think they’re doing great work. I think we’ll get it done.” He paused and smiled. “But there’ll be a little bit of hair-pulling yet to get it all the way across the finish line.”

AUTHOR

Suzanne Bowdey

Suzanne Bowdey serves as editorial director and senior writer at The Washington Stand.

EDITORS NOTE: This Washington Stand column is republished with permission. All rights reserved. ©2025 Family Research Council.

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