The tax plan Senate Republicans released Monday as part of the One Big Beautiful Bill Act differs in several key ways from the House version that advanced last month.
The Senate Finance Committee released the much-anticipated text of the tax bill on Monday evening.
All of the provisions in the new legislation are up for revision, and there will inevitably be negotiations between the House and the Senate over the text in the coming weeks, with the goal being legislation that can get enough GOP votes in the House and the Senate to be sent to President Donald Trump’s desk to become law.
SALT cap left as a placeholder
The cap on state and local tax deductions has been perhaps the biggest, and most controversial, sticking point during negotiations on the legislation.
Republicans in high-tax blue states like New York have been pushing to raise the current $10,000 SALT cap and made it a campaign priority. The House-passed version of the legislation quadrupled the cap to $40,000. Republicans in the Senate want to see that pared back.
The Senate Finance Committee essentially punted on SALT for the time being. Instead of inserting a new SALT cap number, they pegged the SALT cap at $10,000 in their forthcoming legislation as a placeholder for negotiations over the contentious issue.
House “SALT caucus” members immediately pushed back on the placeholder inclusion, with some saying they are unwilling to budge on the $40,000 cap that House Speaker Mike Johnson successfully negotiated with them last month. The showdown over SALT will be a key issue to watch as the bill is debated in the Senate.
A smaller boost to the child tax credit
The Senate legislation bumps the child tax credit permanently to $2,200 and indexes it to inflation thereafter.
The House legislation, in comparison, raised the child tax credit to $2,500, but only through 2028. It would revert to $2,000 in 2029, although it would still be indexed to inflation after that.
Populist conservatives like Vice President JD Vance and Sen. Josh Hawley (R-MO) have pushed for a bigger child tax credit, even as high as $5,000, so both versions of the legislation are likely a disappointment for them.
Business tax breaks are made permanent
The Senate bill makes several major tax breaks for business investment permanent.
The House bill extends those tax breaks, but only temporarily.
Specifically, the Senate bill would permanently allow companies to immediately deduct domestic research and development costs. It would also permanently allow full expensing for new capital investment, such as factory machinery, and would restore interest deductibility to help finance investments.
The business provisions are a key priority for lawmakers because incentives for business are thought to be especially helpful in boosting economic growth. In theory, they could help make the bill less costly to the treasury, because with the increased growth comes increased revenue capture.
A smaller tax on university endowments and private foundations
The Senate scales down a tax on large university endowments included in the House bill. The Senate version would tax universities with the highest student-adjusted endowments — for instance, Harvard University — at an 8% rate. The rate would be 21% in the House version of the bill, in line with the corporate tax rate.
The top rate is 1.4% under current law, which was set by the 2017 GOP tax overhaul
Republicans have increasingly scrutinized universities in the fallout from the 2023 Hamas attack on Israel and subsequent the subsequent fallout and protests.
The Senate legislation also omits a tax hike on large private foundation investment income. In the House bill, the rate would be raised from 1.39% to as high as 10%.
Limits on Trump tax breaks on overtime, tips, Social Security, and auto loans
For the new tax breaks for individuals that Trump promised on the campaign trail, the Senate tax legislation includes limits that are not present in the House version.
- No Taxes on Tips: The Senate legislation sets a $25,000 limit for deductions for income earned as tips. The deduction also phases out at a 10% rate starting at $150,000 in income for a single filer and $300,000 for a joint filer.
- No Taxes on Overtime: The Senate legislation sets a $12,500 limit on deductions for overtime pay. The deduction phases out at a 10% rate starting at $150,000 for single filers and $300,000 for joint filers.
- No Tax on Car Loan Interest: The Senate legislation sets a $10,000 limit on deductions for auto loan interest paid. The deduction phases out starting at at $100,000 for single filers and $200,000 for joint filers. Also, the break is only available for new cars assembled in the U.S.
- No Taxes on Social Security: The Senate version of the legislation provides a $6,000 deduction for seniors over the age of 65, a provision meant to fulfill Trump’s campaign promise to end taxes on Social Security benefits. That is larger than the similar deduction in House version of the legislation of $4,000. The Senate bill, though, phases out the deduction faster for single filers earning in excess of $75,000 or married couples earning more than $150,000.
Notably, in both versions those provisions are temporary and will expire at the end of 2028.
Slower phase-outs for IRA clean energy credits
The Senate version of the includes a slower phase-out of clean energy credits than the House-passed version of the bill.
Specifically, it implements a slower phaseout of the Clean Electricity Production Credit (PTC) and Clean Electricity Investment Credit (ITC) for electricity generated by wind or solar technologies.
Both versions of the Republican tax legislation would roll back energy tax credits created or expanded by the 2022 Inflation Reduction Act. The IRA was a signature piece of legislation passed by Democrats under former President Joe Biden.
SENATE GOP MEGABILL WOULD DEFUND PLANNED PARENTHOOD
No boost for “pass-through” businesses
The Senate legislation does not include the enlarged tax break that was included in the House bill for businesses that file through the individual side of the tax code.
The House bill would raise the deduction for income earned by pass-throughs from 20%, where it was set by the 2017 tax overhaul, to 23%. The Senate bill keeps it at 20%, although it makes it permanent. under current law, it expires at the end of this year.
Republicans defend the tax break as a key pro-growth provision for the many small businesses that are organized as pass-throughs.
And more
- Child and dependent tax credit boost: The Senate version of the legislation also provides a boost to the child and dependent care tax credit, known as the CDCTC. This is a provision that Sen. Katie Britt (R-AL) recently told the Washington Examiner that she was pushing for in reconciliation.
- Tax breaks for more firearms: The House version of the bill removed silencers from the definition of “firearm” under the National Firearms Act and eliminated the transfer tax on silencers, but the Senate version goes even further and does the same for short-barreled rifles and shotguns.