One Big Beautiful Bill Act

One Big Beautiful Bill Act

Why in News? 

Recently, the U.S. House of Representatives passed the ‘One Big, Beautiful Bill Act’. This act includes several provisions, including a proposed tax on remittances sent by migrant workers living in the United States to other countries. 

What is the One Big Beautiful Bill Act ?

• The ‘One Big, Beautiful Bill Act’ (OBBB) was introduced as a major budget reconciliation bill by the 119th U.S. Congress.
• This act aims to extend the provisions of the 2017 ‘Tax Cuts and Jobs Act’ beyond 2025.
• Many of the benefits under the ‘Tax Cuts and Jobs Act’, which favored the wealthy and corporations, were set to expire by the end of 2025. OBBB has been brought to make those benefits permanent or long-term.
• Its objective is to reduce government spending and tighten eligibility criteria for public assistance programs to maintain fiscal balance in the U.S.
• This act has introduced new and stricter norms for programs like SNAP and Medicaid, which will affect low-income groups.
• It also includes a provision to impose a tax on remittances sent by migrant workers to their home countries.
• This will especially impact countries like India, Mexico, and the Philippines, where millions of migrants are working in the U.S. and send a large portion of their earnings home.

Main Provisions of the ‘One Big, Beautiful Bill Act’

• Defense Sector:
  • According to this act, a large portion of the $150 billion allocation will be spent on unmanned drone systems – including suicidal drones, drone boats, and underwater drones.
  • Under the $70 billion budgetary allocation, $46.5 billion will be used to build barriers on the border.
  • These measures will give the U.S. the capacity to deport 1 million people every year.
• Education:
  • Pell Grants eligibility has been revised, and Workforce Pell Grants have been added for vocational education.
  • Subsidized federal loans for graduate students will be discontinued.
  • The powers of the Secretary of Education have been curtailed by barring them from imposing rules based on gainful employment.
• Healthcare:
  • The Medicaid system will now undergo stricter scrutiny and conditions.
  • Instead of self-declaration, repeated state-level verification will now be mandatory.
  • There is also a ban on gender identity-based treatments, funds to abortion-performing nonprofits, and access for illegal immigrants.
• Tax Policy:
  • OBBBA introduces many changes in tax policies.
  • The Child Tax Credit has been increased to $2500, which will remain till 2028, after which it will return to $2000.
  • The SALT deduction cap is proposed to be increased from $10,000 to $30,000.
  • Under the MAGA Savings Account, parents will receive $1000 savings per child.
  • The previously proposed 5% tax on remittances has now been reduced to 3.5%.
• Artificial Intelligence (AI): 
  • The act imposes a 10-year moratorium on AI legislation. For the next 10 years, no state will be allowed to make or implement laws related to AI. This may be an effort to centralize AI policy at the federal level.

Benefits of the ‘One Big, Beautiful Bill Act’ for America

• Higher Income: This act introduces the largest tax cut in U.S. history. Additionally, no tax will be levied on tips and overtime, directly benefiting working-class individuals. These measures could bring transformational changes in increasing the income of laborers.
• Social Security: Senior citizens receiving Social Security benefits will get relief from taxes on those benefits, strengthening their financial position. They will be able to spend more on healthcare, housing, and other essential needs.
• Protecting Medicaid: Under this act, 1.4 million illegal immigrants will be removed from Medicaid benefits, reducing pressure on the government’s health budget and allowing better services for American citizens.
• Air Traffic Control: This act proposes a complete modernization of America’s air traffic control system. It will ensure safety and punctuality in flights. This will lead to improved services for passengers.

Impact of the ‘One Big, Beautiful Bill Act’ on India

• Tax on remittance: The proposal to impose a 3.5% tax on remittances sent abroad by the United States is a serious concern for India’s economy.
  • India received a total of $130 billion in remittances in 2023-24, out of which $30 billion, or around 23.4%, came from the United States alone.
  • With this new tax, about $1.05 billion (around ₹8,750 crore) in extra charges will be imposed on this $30 billion, directly affecting India’s foreign exchange earnings.
• Indian diaspora: Millions of Indian migrants working in the U.S. send money to their families in India every year. This money is used for livelihood, children’s education, healthcare, and investment.
  • With the new tax, these migrants will now be forced to pay more, which may reduce the total amount they send home. This will directly affect the purchasing power and living standards of their families in India.
• India’s domestic consumption and investment: Remittances are invested in real estate, stock markets, education, and consumption in India. This money plays a key role in maintaining economic momentum in both rural and urban areas.
  • Now, if $3.5 is taxed on every $100, that money will stay in the U.S., reducing consumption, lowering investment, and ultimately affecting India’s economic growth rate.
• Foreign exchange reserves: A major portion of India’s foreign currency income comes from remittances.
  • If Indian migrants in the U.S. start sending less money due to the tax, India’s forex reserves may decline.
  • This can impact the rupee’s exchange rate, the import-export balance, and the monetary policy of the Reserve Bank of India.
  • Though the originally proposed 5% tax has been reduced to 3.5%, saving India nearly ₹3,750 crore, this amount is still highly significant for the common people.

Possible measures to tackle the remittance tax crisis

• Strategic trade talks with the U.S.: India urgently needs to initiate diplomatic and trade-level talks with the United States. India should work towards a special economic agreement with the U.S. that includes partial or full exemption for India from the remittance tax. If the government secures this relief, it will benefit Indian families and the Indian economy.
• Expanding opportunities for migrants: India must now make wide changes in its migrant employment policy. To avoid overdependence on the U.S., Indian migrants should explore opportunities in countries like Canada, Australia, the European Union, Japan, and the Gulf nations, where remittance taxes are non-existent or very low. To support this, the Indian government should pursue new labour agreements.

Economic self-reliance at home: India should focus more on domestic investment, startups, small industries, and job creation. Central and state governments must strengthen employment-focused schemes, skill development programmes, and financial aid systems. This will help youth find stable and profitable employment within India.