Budget Legislation Faces Next Hurdle as it Moves to Senate

Key takeaways:

• Making Tax Cuts and Jobs Act provisions permanent is still a large part of the bill

• New programs to implement Trump campaign promises are still intact

• The bill moves to the Senate, and the bill could look drastically different by the time the final bill is approved; questions remain whether it will be completed by the proposed July 4 deadline
  

The “One Big Beautiful Bill Act” was approved by a 215-214 Republican majority and now faces its next test as it moves to the Senate. The bill had been stalled by weeks of internal conflict centered around members of Congress unhappy with the extent of Medicaid spending cuts and concerns about the federal deficit and funding the bill.

 As previously reported, the bill includes making business and individual provisions from the Tax Cuts and Jobs Act (TCJA) permanent and accomplishing various Trump campaign promises. Those business provisions include: 

• Reinstatement of 100 percent bonus depreciation
• Increased Section 179 expense limitations
• Changes to the capitalization of domestic R&D expenses

Individual provisions include:

• Lower TCJA tax brackets
• Increased estate and gift tax exemption and generation-skipping transfer tax
• Increased standard deductions
• Enhanced and expanded child tax credit

Extending and making these provisions permanent have been on Trump’s radar from day one, but the bill also includes new programs that would eliminate income tax on overtime and tips, provide a temporary bonus deduction for senior citizens, and create an exclusion of vehicle loan interest on passenger vehicles (subject to many restrictions, including final assembly).

This “domestic policy mega bill " covers many areas, and any one of them could be changed or eliminated as it passes through the Senate before being approved. One such item is the state and local tax (SALT) deduction limit, which has been the source of much criticism and frustration.

SALT deduction increased in new version

Early versions of “One Big Beautiful Bill” included a $30,000 limit of certain state and local taxes that individuals who itemize their deductions could deduct from their federal income taxes (an increase from the $10,000 TCJA cap), and certain representatives had been adamant that it was not high enough. The revised version of the bill passed by the House now contains a $40,000 SALT deduction cap that phases out for income over $500,000. The SALT cap and income phase out would increase by one percent annually from 2026 to 2033.

This was one of the major sticking points for some of the representatives from high-tax states like New York, New Jersey, and California. Despite helping advance the bill through the House, the SALT deduction limit could still face opposition in the Senate.

Senate showdown after House opposition

This sweeping legislation faced strong opposition in the Republican-controlled House and will likely be subject to even further scrutiny from its members in the Senate. Concessions had to be made to pass the House, and surely, more negotiations are ahead as the bill moves to the Senate.

This bill could look drastically different when it reaches the President’s desk for signing. The tentative deadline for bill passage is July 4, and we will monitor all developments related to any provisions that may impact your business.

Start planning now for next year

Early planning is critical. President Trump’s tax plan, whatever its final form, will significantly affect your tax planning, so it is important to begin discussing potential changes with your trusted advisor. At this point, taxpayers should plan for multiple scenarios so they can be prepared for changes, whatever they may be.

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