Tax Reconciliation Bill Could Trigger $500 Billion in Mandatory Medicare Cuts
The deficits caused by the tax bill would trigger the Statutory Pay-As-You-Go Act of 2010 and force billions in cuts to Medicare, unless Congress takes action.


President Trump's new tax bill, passed in the House and now headed to the Senate, could yield billions in mandatory cuts to Medicare. That's because projected deficits in the tax bill could trigger the Statutory Pay-As-You-Go Act of 2010 (PAYGO), unless Congress acts to intervene.
The pending House reconciliation bill could lead to over $500 billion in Medicare cuts from 2026 to 2034, as projected by the Congressional Budget Office (CBO).
The CBO estimates that the bill would increase the deficit by at least $2.3 trillion compared to current law. If enacted, this deficit increase would trigger mandatory sequestration cuts under PAYGO. Notably, unlike Social Security and low-income programs, Medicare is not exempt from these potential cuts.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The PAYGO Act
The PAYGO Act mandates sequestration if Congressional legislation is projected by the Office of Management and Budget (OMB) to increase the deficit on average over either a five- or ten-year period, within a session. Despite being triggered multiple times, Statutory PAYGO sequestration has been consistently waived by Congress and has therefore never been implemented.
Certain programs and types of spending are exempt from sequestration, with most of the exemptions related to mandatory spending. Exempt health programs include: Medicaid, CHIP, ACA tax credits, Medicare Part D low-income subsidies and reinsurance, and veterans' medical care. Social Security is also exempt from sequestration.
Most Medicare spending is subject to sequestration, but special rules cap the reduction percentage for Medicare and certain other programs. The Budget Control Act (BCA) limits cuts to Medicare benefits spending, encompassing payments to providers under Part A and Part B, and to plans under Part C (Medicare Advantage) and Part D, to 2%. This is less than the standard percentage reduction applied to other nonexempt mandatory spending. Under a Statutory PAYGO sequester, these Medicare benefit payment reductions are capped at 4%.
If a PAYGO sequester were to be triggered, neither the Statutory PAYGO Act nor the BCA includes any explicit directions as to how the two sequesters would be implemented alongside each other.
Congress can stop the cuts
The aim of Statutory PAYGO is to enforce budget discipline, but the automatic spending cuts have never taken effect. Congress has consistently prevented these cuts by either excluding their impact during the initial legislation or by later delaying or eliminating them.
For instance, the Tax Cuts and Jobs Act of 2017 and the American Rescue Plan of 2021 both significantly increased the federal deficit, $1.9 and $2.1 trillion respectively, without triggering automatic cuts under PAYGO because of congressional action.
Time will tell
Congress could act later this year to prevent these cuts, similar to previous years when the PAYGO cuts were triggered. However, unlike the reconciliation bill, removing the impact of legislation from the PAYGO scorecard in the Senate requires 60 votes instead of a simple majority, making it more challenging for the administration due to slim majorities in both chambers.
Related Content
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Donna joined Kiplinger as a personal finance writer in 2023. She spent more than a decade as the contributing editor of J.K.Lasser's Your Income Tax Guide and edited state specific legal treatises at ALM Media. She has shared her expertise as a guest on Bloomberg, CNN, Fox, NPR, CNBC and many other media outlets around the nation. She is a graduate of Brooklyn Law School and the University at Buffalo.
-
I’m Burned Out at Work, But I Dread Retirement Boredom and Loneliness. Now What?
We asked the experts what to do when you're stuck on the fence.
-
Fewer Agents, Fewer Audits: How IRS Staff Cuts Are Changing Enforcement
Significant reductions in the IRS workforce appear to be increasing the number of 'no change' audit closures. The shift could potentially increase the overall tax gap — the difference between taxes that should have been paid and those that were.
-
What if You Could Increase Your Retirement Income by 50% to 75%? Here's How
Combining IRA investments, lifetime income annuities and a HECM into one plan could significantly increase your retirement income and liquid savings compared to traditional planning.
-
Here's Why You Shouldn't Do an Estate Plan Without a Financial Planner
Estate planning isn't just about distributing assets. Working with a financial adviser can ensure you've considered the big picture — and the finer details.
-
Want To Retire at 60? See if You Can Answer These Five Questions
Forget waiting for Social Security and Medicare to kick in. You may be able to retire sooner than you think.
-
Trump Tariffs and Taxes: Waiting to See What Happens Is Not a Strategy
Like presidents, tariffs come and go. Policy changes also shift about every two years with the election cycle. If you're paralyzed by uncertainty, you could be missing opportunities to benefit your financial future.
-
Is a Family Office Right for You? The Multimillion-Dollar Question
As ultra-high-net-worth individuals increase in number, many are turning to family offices to manage their complex finances. Here's how family offices work, courtesy of a finance professional.
-
The Hidden Cost That's Ruining Vacation Home Dreams
Are rising HOA fees derailing your second home dreams? Annual dues, insurance premiums and taxes are rising, boosting total ownership costs. Here's what you can do.