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House-Senate Struggles
Those of us reporting on the Big Beautiful Bill have been waiting for one shoe to drop: the Senate Finance Committee’s proposed text. The committee is responsible for two of the biggest facets of the bill: taxes and health care changes. The clean energy investments from the Inflation Reduction Act (IRA) are all tax credits, and therefore also fall under Senate Finance.
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So a substantial portion of the bill comes out of this committee, including the pieces where there are real differences between the House and Senate. We expect the text to finally be released today, and with the alleged tough-guy fiscal hawks in the Senate now chickening out, these inter-chamber provisions are the primary holdups to the bill.
Specifically, Senate Finance, chaired by Sen. Mike Crapo (R-ID), is rolling back the House changes to the SALT deduction cap. This has taken on a high level of importance because it costs $377 billion over a decade, and the fiscal hawks are looking for savings wherever they can find them. The cap was raised in the House to allow people making $500,000 a year or less to take up to $40,000 in deductions from state and local taxes. Senate Finance is going to drop that back closer to the $10,000 cap that’s current law. But that’s likely the continuation of an ongoing negotiation with the House SALT Caucus, who has repeatedly said they would bolt from the bill if they don’t get the $40,000 cap.
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A second major change is on the clean energy tax credits. The House phased nearly all of those out for producers if they aren’t in the opening stages of construction within 60 days of enactment. Energy Innovation just put out a report showing that this would increase electricity bills by $170 billion, reduce capacity by hundreds of gigawatts, cut over 840,000 jobs in the first five years, and reduce GDP by $1.1 trillion over a decade. It would be carnage in the energy sector, in other words, and a painful blow after the IRA had really kicked off an energy revolution in the country.
Senate Finance would extend the timeline for those phase-outs, but only with certain energy types. We don’t have full text yet, but nine out of ten new energy projects in America are solar, wind, or battery storage, so if those timelines aren’t extended, the practical effect will be the same as the House version, while angering House Freedom Caucus members who got the tighter phase-outs as their win in the bill.
There’s been less talk about the health care section, but the Prospect has learned that the Medicare title is out of the bill. There was talk of a fix that would reduce the ability of private Medicare Advantage plans to overcharge the government by "upcoding" to make their patients look sicker and qualify for extra federal dollars. It was always stupid to assume that Republicans would fix upcoding, but it's now confirmed they won't. In addition, there are strong indications that the so-called Medicaid "provider tax," a gimmick whereby states charge health providers a tax but then pay it back in the form of higher reimbursements, as a means to get more federal money from their share of that reimbursement, will be scaled back even more than in the House bill. The House put a 5 percent cap on provider taxes; the Senate may phase that down to 3.5 percent. In practice this just means fewer state resources for Medicaid and is effectively a cut.
What the Senate has really wanted is permanent extensions of three business tax provisions: research and development credits, interest deductions, and full expensing of machinery and equipment. Those were time-limited to five years in the House bill.
It costs more to make these cuts permanent, which is driving the rollbacks on the SALT cap. Crapo has gone over this in meetings with President Trump, so I wouldn’t expect too many changes to the Trump priorities of no taxes on tips and overtime pay, and the extended standard deduction for seniors (which looks nothing like no taxes on Social Security benefits, by the way), but there could be trims there too, as some have called for.
The larger point is that none of this really will change a lot of the distributional realities of the megabill, which are absolutely brutal. The Congressional Budget Office’s assessment of the House version shows that the lowest 10 percent of income earners will lose about 4 percent of their income, a recession level of contraction, while the top 10 percent will gain around 2.3 percent. In terms of actual dollars, it means $1,600 less for the lowest-income people and $12,000 more for the highest.
Congressional Budget Office
The Institute for Macroeconomic & Policy Analysis (IMPA) estimates on the bill are actually even worse, with after-tax incomes for the lowest-income households falling by more than 5 percent. It also finds lower GDP by about 0.5 percent in the first decade. The GDP contraction in particular is at odds with Republican claims that the tax cuts will supercharge the economy. “From a macroeconomic perspective, the OBBB fails on every front: It increases the deficit, weakens the social safety net, and raises inequality, without delivering credible economic gains,” a summary of their report reads.
And this is before you get to the fact that this bill will kill an estimated 51,000 people a year, and cause 10.9 million to lose their health insurance. (Another 5.1 million will lose health insurance from failing to maintain expanded premium support on the Affordable Care Act exchanges.)
Plus, if you add in the effect of across-the-board tariffs, the bottom 80 percent of the income distribution lose money from Trump’s policies, and only the top 20 percent gain. Adding the Big Beautiful Bill to tariffs and you’re talking about a net 6.6 percent cut to household bottom lines for the bottom 10 percent.
This data, of course, is based on the budgetary impact as written, with the expectation that people will actually pay their taxes. At the high end of the earning spectrum, there are strong reasons to doubt that. The dismantling of the IRS will roll back the doubling of audits on the wealthy that we saw during the last year of the Biden administration. When rich people’s lawyers and accountants know they will not be challenged on their tax returns, the motivation to push the legal envelope to avoid taxes will grow. And so the real changes to income distribution, I suspect, will look even worse than that awful chart.
The Senate changes, wherever they land, won’t really affect this that much. SALT cap changes will maybe benefit the wealthy a little less, but that doesn’t change the situation for most taxpayers. Destroying clean energy is certainly one of the major reasons for GDP contraction in the bill, but the cuts to food assistance and Medicaid and student loans are bad enough, particularly for the working poor. And there are other provisions like the punitive “revenge tax” on foreign countries that will harm businesses as much as the permanent deductions will help them.
All of this is why the bill is extremely unpopular, and doesn’t even have widespread support among Republican voters. The changes that the Senate is doing will clearly extend the timeline on the bill, as Sens. Ted Cruz (R-TX) and John Curtis (R-UT) have intimated. There’s no way this thing is done by July 4, which means that Republicans will be saddled with this unpopular albatross for weeks to come. That hasn’t yet dislodged a critical mass of them from supporting the package. But every day raises that opportunity.
TEXT, TEXT, TEXT
The only text we’re waiting on is from the Finance Committee. Just to establish a baseline, here are the rest of the Senate committee versions of the bill:
Agriculture: These are the provisions that cut the Supplemental Nutrition Assistance Program, including certain state matching funds that have never been part of the program before. Then there are a ton of agricultural rules; an attempt to put through a mini-farm bill that Republicans were unable to get together last year. There are expectations that this won’t survive the Senate rules that everything in reconciliation have a primarily budgetary purpose.
Banking: Among other things, this would completely zero out the Consumer Financial Protection Bureau budget by “capping” the amount that CFPB can request from the Federal Reserve at $0. This has no impact whatsoever on the federal budget—it isn’t an on-budget expense—and as such should be kicked out by the Senate parliamentarian. But we’ll see. Sen. Elizabeth Warren (D-MA) talked about this provision here.
Energy and Natural Resources: This includes a proposal from Sen. Mike Lee (R-UT) to sell off public lands in 13 Western states, ostensibly for housing but actually for timber development, it appears. The rest involves opening up parts of the country, like the Alaska National Wildlife Refuge, to oil and gas drilling.
Homeland Security and Government Affairs: Hilariously, Sen. Rand Paul (R-KY), an opponent of the bill, is in charge of this committee, and he cut the House version’s funding, mostly around border security, by 50 percent, prompting the Budget Committee chair Sen. Lindsey Graham (R-SC) to come in and restore it.
Judiciary: This includes the punitive fees on asylum seekers and other people attempting legal immigration. There are also appropriations that are part of the rapidly expanded immigration enforcement budget I wrote about last week, mostly in line with the House version. It also maintains a provision shielding the executive branch from contempt rulings, only in a different fashion, by forcing plaintiffs seeking an injunction or temporary restraining order to cough up a bond that covers costs sustained by the federal government, which could have the effect of stopping those suits altogether.
HELP: Though the HELP Committee plays a role on health care, this is mainly the part of the bill with the student loan changes, which are really brutal. I’ve been over them before with the House version and the Senate does not deviate much from it.
Commerce: We’ve mostly been over this one previously, but there are auctions of wireless spectrum in here, along with that provision to ban state AI regulations for a decade.
Armed Services: This has all the added money for the military budget, about $150 billion overall for an agency that already has an annual budget of around $1 trillion.
Environment and Public Works: This pauses a tax on methane emissions and includes a “pay to play” provision for faster permitting if projects pay a larger fee.
