Key Takeaways
- The Senate is likely to completely rewrite the House-passed 1,000-page tax bill.
- Senators protect their independence and will have different political goals than their House counterparts.
- The Senate may tweak the energy credit rollbacks and deficit impact of the House bill.
- The House bill's hike in the state and local deduction cap may only help the richest taxpayers.
- IRS commissioner nominee faces Congressional scrutiny for his business dealings in tax credits.
Finally, after weeks of deliberations, the House of Representatives has passed a bill—more than 1,000 pages of complex tax legislation, with dozens and dozens of changes to all areas of the tax code, painstakingly negotiated by different factions of Republicans.
Now, that final work product will be thrown out and entirely re-written.
While the process of passing the House bill—by a single vote, 215-214—felt like a marathon, it was actually only the first lap. It heads over to the Senate, whose committees will likely produce their own drafts over the next month, using the House bill as a starting point but with very different language and provisions.
Then, somehow, they all have to get on the same page.
Why will the Senate probably make such drastic changes to legislation which already went through such a rigorous process?
Partly, it’s a matter of jurisdictional pride. Even in this age where partisanship rules all, the two chambers are very protective of their roles, and senators take seriously their responsibility of being the “cooling saucer” to House legislation, to use Washington and Jefferson’s metaphor.
Beyond that, senators have political objectives that don’t always align with their House counterparts—although nearly all of the Republicans want to see the bill cross the finish line. Some senators have strongly objected to the bill’s drastic increase to the national debt. Others object to how the bill rolls back the Inflation Reduction Act’s environmental credits, including a final tweak to appease House hardliners that pushes up the expiration of clean electricity credits from 2031 to 2028. The faster timetable runs the risk of shutting down current projects, critics claim. There aren’t as many “blue state” Republican senators whose vote hinges on protecting the state and local tax deduction, and who will fight to defend House Speaker Mike Johnson’s final bargain on the issue, a cap of $40,000 for couples with incomes less than $500,000 per year.
With more time to work, Senate tax-writers may find ways to iron out some of the rougher parts of the House draft. And now with specific proposals to lobby for or against, those affected by the legislation will ramp up their efforts to persuade Congress. New considerations or potential problems could come into view.
There’s also a procedural issue—House staffers aren’t as familiar with the complex reconciliation rules, which the Senate is using to bypass a potential Democratic filibuster. Those include restrictions on what type of legislation can be included, and how it can affect the national deficit. Tweaking the provisions of the bill may be necessary to keep the Senate parliamentarian from throwing them out altogether.
After decades of passing legislation through reconciliation, this is a two-step dance that folks on the Hill have gotten pretty familiar with. The new wrinkle is the slim margin for error in the process. In the past, the Senate has usually been the biggest obstacle to passage—and therefore has the most leverage in negotiations. This time around, pretty much any Republican member of Congress could block the legislation. (Though they risk a party backlash and the social media fury of President Trump.) Senators will have to think harder about what they’re willing to stomach to ensure that something gets into law.
It’s a new, equilateral negotiation that leaves a lot of question marks about what can get through. But so far, Republican leaders have surprised many of Washington’s wizened cynics with how much they’ve been able to accomplish.
Recent Tax Pieces:
Trump’s ‘Big, Beautiful Bill’ Heads to Senate, Where New Fights Loom – Siobhan Hughes, Richard Rubin and Lindsay Wise, The Wall Street Journal:
SALT Cap Bump to $40,000 in GOP Bill Would Help Few Taxpayers – David Hood, Bloomberg Tax:
Quadrupling the cap would only exacerbate the gulf of who qualifies to claim the deduction, said Nikhita Airi, a research associate at the Tax Policy Center.
“Maybe a higher SALT cap tips the scales for some people, but I still think there are going to be relatively few itemizers that are able to take the SALT deduction,” she said. “It’s just such a narrow group of people who are relatively well-off and high-income—and I appreciate that their tax burden is challenging, but this is really a very narrow tax cut.”
House Republicans Send Trump's $3.8T Budget Bill To Senate – Asha Glover, Stephen Cooper, Law360 Tax Authority ($):
It would also permanently extend the doubled standard deduction with a temporary increase through 2028 of $1,500 for married taxpayers and $1,000 for individuals. Under the proposal, the child tax credit would be increased to $2,500 per child through 2028 before dropping to a permanent credit of $2,000. The bill would require both parents to have Social Security numbers to claim the credit.
The Megabill Is a Total Bust, According to the GOP’s Leading Economic Populist – Ian Ward, Politico Magazine:
In an interview with POLITICO Magazine, Cass said there are a handful provisions in the bill that appeal to those trying to move away from Republican economic orthodoxy. But on the whole, he said, the bill is a messy hodge-podge of conventional conservative priorities that won’t do much to help Trump’s working-class constituencies or the broader public. The centerpiece of the legislation is an extension of the 2017 Trump tax cuts, and it will significantly increase the federal deficit even as it includes deep cuts to Medicaid and food stamp programs for low-income Americans.
Trump’s IRS Pick Unsure if Credits He Promoted Are Real – Benjamin Valdez, Tax Notes ($):
We're Here to Help
