Key Takeaways
- The Senate has finally produced text for its version of the tax bill.
- Unlike the House, the Senate aims to make key changes permanent.
- This could set up a standoff between the chambers.
- Democrats not standing down in tax bill fight.
- Tax bill to kill energy projects.
The Senate Finance Committee released long-awaited legislative text this week, taking another big step in the process that seems poised to produce a major tax bill sometime this summer.
The committee released portions of its own version of the May 22 legislation passed by the House of Representatives, which extends many expiring provisions of the 2017 Tax Cuts and Jobs Act while making several other significant changes to the tax code. The Senate text mostly does the same, and generally follows the House bill–but it also makes some major changes that will likely set up standoffs between the chambers over various issues.
This is true even though the House and Senate are controlled by the same party, and have the same goal of producing a tax bill for President Trump to sign.
Those areas of disagreement include how much to raise the limit on the deduction for state and local taxes and how drastically to roll back the energy credits in the Inflation Reduction Act. Another big overall difference is how the Senate version prioritizes permanence, while the House focuses a lot of the tax cutting into the next few years.
For instance, both the House and Senate version return to 100% bonus depreciation on certain assets, and expensing of research and development costs under Section 174. They also loosen the limit on the deductibility of business interest expenses under Section 163(j). But while the House bill only does this from January 2025 through 2029, the Senate proposal would do so permanently.
This has been a goal of Republican senators from the beginning–to remove, as much as possible, arbitrary cutoffs and avoid future “tax cliffs.” They’re not eager to do this again, or to end up enacting policies on a yearly basis. (In the past, many tax provisions would be renewed nearly annually, called “tax extenders” on the Hill. But those have been less prominent since passage of the TCJA.)
To be clear, both bills include many temporary policies, like deductions for tips, overtime, and auto loan interest, which expire in 2029. But on many of the marquee items, Senators apparently prioritized making policies longer-term than their House counterparts. Presumably, everyone would prefer to make most of these changes permanent. But under reconciliation, and with the agreements made to debt hawks, they only have so much revenue to work with.
And longer extensions in these cases won’t be cheap. That’s particularly true for bonus depreciation and R&D expensing, which are ultimately timing differences, changing when certain costs can be recognized. In the years after they expire, they actually result in more revenue being raised. To give one example, the Congressional Budget Office estimates that making bonus depreciation permanent would cost $329 billion over 10 years, while the Joint Committee on Taxation said a temporary four-year extension would cost $36.6 billion over 10 years.
To make up some of that gap, the Senate version makes more drastic cuts to Medicaid and nixes a proposed increase in the state and local tax deduction–which House members have already said would be non-starters.
But the revenue has to come from somewhere, and with tax rate hikes off the table, there aren’t many more options.
The committee released portions of its own version of the May 22 legislation passed by the House of Representatives, which extends many expiring provisions of the 2017 Tax Cuts and Jobs Act while making several other significant changes to the tax code. The Senate text mostly does the same, and generally follows the House bill–but it also makes some major changes that will likely set up standoffs between the chambers over various issues.
This is true even though the House and Senate are controlled by the same party, and have the same goal of producing a tax bill for President Trump to sign.
Those areas of disagreement include how much to raise the limit on the deduction for state and local taxes and how drastically to roll back the energy credits in the Inflation Reduction Act. Another big overall difference is how the Senate version prioritizes permanence, while the House focuses a lot of the tax cutting into the next few years.
For instance, both the House and Senate version return to 100% bonus depreciation on certain assets, and expensing of research and development costs under Section 174. They also loosen the limit on the deductibility of business interest expenses under Section 163(j). But while the House bill only does this from January 2025 through 2029, the Senate proposal would do so permanently.
This has been a goal of Republican senators from the beginning–to remove, as much as possible, arbitrary cutoffs and avoid future “tax cliffs.” They’re not eager to do this again, or to end up enacting policies on a yearly basis. (In the past, many tax provisions would be renewed nearly annually, called “tax extenders” on the Hill. But those have been less prominent since passage of the TCJA.)
To be clear, both bills include many temporary policies, like deductions for tips, overtime, and auto loan interest, which expire in 2029. But on many of the marquee items, Senators apparently prioritized making policies longer-term than their House counterparts. Presumably, everyone would prefer to make most of these changes permanent. But under reconciliation, and with the agreements made to debt hawks, they only have so much revenue to work with.
And longer extensions in these cases won’t be cheap. That’s particularly true for bonus depreciation and R&D expensing, which are ultimately timing differences, changing when certain costs can be recognized. In the years after they expire, they actually result in more revenue being raised. To give one example, the Congressional Budget Office estimates that making bonus depreciation permanent would cost $329 billion over 10 years, while the Joint Committee on Taxation said a temporary four-year extension would cost $36.6 billion over 10 years.
To make up some of that gap, the Senate version makes more drastic cuts to Medicaid and nixes a proposed increase in the state and local tax deduction–which House members have already said would be non-starters.
But the revenue has to come from somewhere, and with tax rate hikes off the table, there aren’t many more options.
Recent Tax Pieces:
Senate Dems Map Last-Ditch Strategies to Alter Tax Bill – Doug Sword and Cady Stanton, Tax Notes ($):
Democrats expect to be making their case into the week of June 23 that the Senate parliamentarian should rule against several features of the Senate Finance Committee’s tax package released June 16. Among their goals are to win rulings requiring that Republicans use a stricter method to score the cost of the tax package.
‘Throwing us off a cliff’: Megabill could derail hundreds of planned clean energy projects – Kelsey Tamborrino and Jessie Blaester, Politico:
An analysis by POLITICO identified 794 wind farms, solar plants, battery storage facilities and other clean electricity generation projects that have not yet begun construction and could be at risk of losing two crucial tax breaks if the House prevails in rolling back Democrats’ 2022 climate law. A competing proposal from the Senate Finance Committee would make a less aggressive attack on the law’s incentives — but even then, hundreds of those projects could still lose all or part of the tax breaks if they don’t move fast enough to start construction.
Christmas in July for the SALT Cap – Marie Sapirie, Tax Notes ($):
The members of Congress clamoring to raise the deduction limitation are typically in districts like that of Rep. Michael Lawler, R-N.Y., where the median household income is $118,721 — considerably more than the median U.S. household income of $78,538. (United States Census Bureau, “My Congressional District” and “QuickFacts: United States.”) The House report provides no reason for the proposed increase and extension but blithely explains that the other changes are “to prevent the avoidance of the SALT cap.” (H.R. Rep. No. 119-106, pt. 2, at 2053 (2025).) That should instead say that avoidance is OK if you’re in the right sort of business.
The Tax Angle: EITC Audits, UTPR, Energy Credits – Stephen K. Cooper, Law360 Tax Authority ($):
A provision tucked inside the House-passed budget reconciliation bill threatens to unleash a new surge in Internal Revenue Service audits of parents who claim the earned income tax credit, according to a new report from the Tax Law Center at New York University School of Law.
Greg Leiserson, a senior fellow at the center, warned Thursday that the requirement of the budget bill, or One Big Beautiful Bill Act, for precertification before taxpayers with children file their returns will lead to more audits by the IRS. The $3.8 trillion budget reconciliation legislation, which passed the House just before Memorial Day, is now under Senate consideration and could be changed by lawmakers in the upper chamber.
Greg Leiserson, a senior fellow at the center, warned Thursday that the requirement of the budget bill, or One Big Beautiful Bill Act, for precertification before taxpayers with children file their returns will lead to more audits by the IRS. The $3.8 trillion budget reconciliation legislation, which passed the House just before Memorial Day, is now under Senate consideration and could be changed by lawmakers in the upper chamber.
Republican Who Flip-Flopped on Energy Credits Risks Voters’ Ire – Ari Natter, Bloomberg News ($):
Trump’s so-called “big, beautiful,” bill, which would also extend 2017 tax cuts and cut Medicaid benefits, will take aim at tax incentives for wind, solar and other renewable forms of power solidified in his predecessor, Joe Biden’s, Inflation Reduction Act. There’s currently $13 billion in energy investments and an estimated 3,300 jobs for projects including solar projects being developed by AES Corp. and Consolidated Edison Inc., according to an analysis by Citizens Climate Lobby, a non-profit advocacy organization.
Sports Team Owners’ Write Off Spared in Senate Tax Bill – Chris Cioffi, Bloomberg Tax ($):
The proposed Senate legislation bill, released Monday, omits the House version of the legislation that would have restricted the write-off to half of the declining value of the franchise purchased by sports owners. The House provision would generate about $991 million over a decade, according to a Joint Committee on Taxation estimate.