The Senate on Monday unveiled its version of President Trump's "Big Beautiful Bill," with major revisions complicating the President's plan to have the bill on his desk and signed by the 4th of July. The most consequential part of the Bill would codify the 2017 tax cuts from the first Trump administration, which are set to end in December of this year. If those tax cuts are not codified in Congress, Americans will face a $4 trillion tax hike, according to Senate Finance Committee Chairman Mike Crapo (R-Idaho).
Many hardline conservatives in the Senate have given the bill trouble, citing a $2.4-3.1 trillion increase to the budget deficit. According to the Congressional Budget Office (CBO), these numbers are even after the spending cuts are taken into account. The Trump administration claims the CBO prediction is not only inaccurate but also partisan.
The fiscal hawks in the Senate demanded deeper and more substantive cuts to programs like Medicare and Medicaid. These further cuts signal trouble, as President Trump promised he would not make any drastic changes to those entitlement programs.
The Senate's version of the bill is likely to complicate its passage, according to the Wall Street Journal, delaying the timeline the President has outlined.
The first major change is that the Senate reduced the state and local tax (SALT) deduction cap to its original amount of $10,000. The House of Representatives, in its version, had increased the cap to $40,000 as many blue-state Republicans needed the increased deductions for their constituents. Immediately upon release of the Senate's version of the bill, New York Republicans declared the reduced SALT cap unacceptable, signaling an upcoming battle in Congress. A higher SALT deduction benefits blue states with higher state and local tax burdens, as those taxes can be deducted from a taxpayer’s federal taxable income, effectively reducing what they owe the IRS. Essentially, a higher SALT deduction translates to a bailout for poorly run blue states with high tax rates, and the Senate finds this unacceptable.
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The second major change was the Senate's extension of clean energy credits that were created in President Biden's 2022 Inflation Reduction Act. In a last-minute concession to conservatives, the House bill was rewritten to deny tax credits to projects that fail to break ground within 60 days or begin operations before the end of 2028. The Senate's version would let wind and solar projects start in 2027 or 2028 and still receive a tax credit. Other technologies like geothermal, nuclear, and hydropower projects could receive credits as late as 2035.
As for Medicaid, the Senate capped a popular tax at 3.5 percent, which states impose on medical providers to increase federal contributions to their extended healthcare programs. More than 35 states will have to decrease their taxes to meet that requirement. The Senate bill also reduces existing state supplemental payments into Medicaid, whereas the House version only limits future payments. This would require states to shoulder more of the cost for Medicaid. The Senate also imposed greater work requirements than the House, requiring work for those with children 14 years of age or older. The House had only required work for those without dependents.
Other notable changes in the Senate bill include locking in business tax credits that were temporary under the original proposal. The Senate also decreased the top tax rate on university endowments from 21 percent to 8 percent, though it’s worth noting that the current rate is just 1.4 percent. The revised version also raises the proposed senior deduction from $4,000 to $6,000 per person. It caps the "no tax on tips” deduction at $25,000 per individual, a significant shift from the House’s open-ended version. The overtime tax break gets a ceiling as well, $12,500 for individuals, $25,000 for married couples. Finally, the Senate increased the child tax credit to $2,200, slightly higher than the $2,000 offered in the House bill.
A final major change, set to cause more debate amongst Congressional Republicans, was a further increase in the debt ceiling, from $4 trillion to $5 trillion.
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