In this episode of Tax Notes Talk, Tax Notes Capitol Hill reporters Cady Stanton and Katie Lobosco discuss the final version of the House’s reconciliation bill and what’s next as the legislation heads to the Senate.
Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity.
David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: reconcilable differences.
On May 22 the House passed the One Big Beautiful Bill Act, a giant reconciliation bill that has been hotly debated over the past few months. Factional disagreements over the state and local tax deduction cap and energy credits, as well as the need to balance tax cuts with revenue raisers, made the road to a finished bill a rocky one.
So how did those issues get resolved, and what’s next for the bill as it goes to the Senate? You can find a link to our deep dive into the clean energy tax credit changes in the show notes. But joining me now to walk us through the bill as a whole are Tax Notes Capitol Hill reporters Cady Stanton and Katie Lobosco. Cady, Katie, welcome back to the podcast.
Cady Stanton: Thanks for having us.
Katie Lobosco: Good to be here.
David D. Stewart: So there was a bit of drama leading up to this bill. Could you walk us through what happened in the lead-up to the vote?
Katie Lobosco: Sure. There was still a lot of moving parts a week out from this vote. House Speaker Mike Johnson would later look back and call it “a perilous time with a number of pivotal moments.”
So one of the first signs of some trouble came when it was time for the House Budget Committee, which combines different parts of the bill together. They failed to advance the legislation. Now, this was the Friday before the vote. So, initially, four members on that committee — members who are part of the staunchly conservative House Freedom Caucus — they voted against advancing this bill. So they took the weekend to negotiate a little bit more, and that committee came back on Sunday at 10 p.m. to revote, and they were able to advance the bill at that point.
Now, Monday came, and Johnson tells reporters, “We’re still building consensus; there’s still some sticking points that have yet to be decided.” These were things like the SALT cap and cuts to the Medicaid program. But Tuesday comes, and there’s a little bit of a shift on the Hill. President Trump comes to speak to the Republican caucus, and several members come out of that meeting saying they think the president moved the needle and we’re getting closer to where we need to be. House leaders start singing a different tune, and the leaders say the time for talk is over. That comes partly true.
On Wednesday — early Wednesday, 1 a.m. — the Rules Committee convenes. Now, they’re the last committee to have to vote on the bill before it heads to the floor, but we still don’t have a final bill text yet. They’re still hammering out some of these details, and some of the holdouts — again from the House Freedom Caucus — they’re still concerned about the deficit impact of the bill. They go and meet with the White House, and they return, and House Speaker Mike Johnson says, “We’re going to move forward.”
We’re about 5 p.m. now; we still don’t have a bill text. The Rules Committee is still meeting, and we finally get this final bill, what we call the manager’s amendment, that makes changes to the bill around 9 p.m. Rules advances it out of committee by midnight, and eventually the final vote happens just before 7 a.m.
David D. Stewart: So tell me about this manager’s amendment. What sort of changes were being made by the Rules Committee?
Cady Stanton: Yeah, it’s really important to point out that manager’s amendment because, as Katie was mentioning, there were quite a few changes in the 11th hour to this bill. So some context on timeline here, since it all came together quite quickly.
The original full bill text was released May 12, ahead of the House Ways and Means Committee markup, then amended slightly through the Budget Committee May 19, and finally that manager’s amendment with the biggest swath of changes was released late May 21, less than 12 hours before the final vote. Those changes included a further increase on the SALT cap — even higher than the $30,000 cap set in the original version of the bill. It also included accelerated phaseouts for clean energy credits from the Inflation Reduction Act, with carveouts for nuclear energy projects and changes to transferability rules. There were also adjustments to FDII, GILTI, and BEAT calculations. That manager’s amendment also undid a repeal originally in the bill on the excise tax for indoor tanning services, which is very specific. And there were also changes to itemized deduction limitations for those with income in the highest tax bracket. The point of these, as Katie discussed, was largely to convince holdouts.
There were also some changes to Medicaid work requirements to please the House Freedom Caucus, and SALT members in the end were pretty happy with the SALT cap in the bill, and they called it a victory for SALT on social media.
David D. Stewart: So how did the votes shake out ultimately?
Katie Lobosco: In the end, the bill passed the house 215 to 214. So there were two Republicans that voted no — Thomas Massey of Kentucky and Warren Davidson of Ohio — and they have concerns about how much this bill will add to the deficit.
I’ll note that House Freedom Caucus Chair Andy Harris, he voted present. He wanted to move the bill along in the process, but he said, “There is still a lot of work to be done in deficit reduction and ending waste, fraud, and abuse in the Medicaid program.”
And then there were two Republicans that actually missed the vote that raised some eyebrows, because they were David Schweikert of Arizona and Andrew Garbarino of New York, and they were both very involved in getting this legislation together. Schweikert had just missed the vote; he showed up at the last second and didn’t get his vote in.
And Garbarino apparently fell asleep, according to Mike Johnson. Again, this vote was just before 7 a.m. in the morning. They had been going all night, and he didn’t get to the floor in time to vote.
David D. Stewart: So let’s turn to the actual content of the bill. What sort of tax cuts are we seeing in the legislation heading to the Senate?
Katie Lobosco: So the bill would extend most of the individual and estate provisions of the Tax Cuts and Jobs Act, which are set to expire at the end of this year. So it makes permanent lower tax rates for individuals and makes the expiring standard deduction permanent and temporarily boosted by $1,000 for individuals and $2,000 for joint filers through 2028. It permanently extends the child tax credit at $2,000, with a $500 boost through 2028, and it increases the estate and gift tax exclusion from $14 to $15 million for individuals and from $28 to $30 million for couples in 2026 and indexes that amount to inflation thereafter.
There’s also some reforms to business taxes: The bill would permanently increase the passthrough deduction from 20 to 23 percent, and it also would slightly adjust and make permanent three international business provisions. One is the amount of foreign-derived intangible income, known as FDII, that a domestic corporation can deduct. There’s the GILTI, which is the amount of a corporation’s global intangible low-taxed income deduction, and BEAT, the base erosion and antiabuse tax.
David D. Stewart: So you mentioned that there was an increase in the SALT cap. What happened with the SALT cap and these energy credits?
Cady Stanton: Absolutely. SALT was definitely the producer of the most drama over the past few weeks, particularly in the tax realm. For context, the SALT cap is currently set at $10,000, and that was set by the TCJA, but that provision is set to expire at the end of 2025. So after a lot of late-night meetings and pretty loud pushes from Republican members of the SALT Caucus, the bill in the end included an increase on the SALT cap to $40,000. It also included a phaseout for that cap, starting at people who make income over $500,000, and there’s also a slight increase both in that cap and that phaseout every year until 2033. And after 2033 it remains what it was for 2033, so it doesn’t go back down.
Now, this high number was considered a pretty big win for the SALT Caucus, but it’s important to note that there really aren’t that many SALT allies in the Senate, particularly among Republicans. So it would be pretty surprising if this stays as-is after the Senate is done with the bill.
Now, turning to the IRA credits. When we talk about IRA, we’re obviously referencing the Inflation Reduction Act, a bill that was passed by Democrats in 2022 and included a variety of clean energy tax credits. At the time the bill was passed, there was a certain cost estimate for these credits, but that estimate has gone up significantly, according to estimates from the Joint Committee on Taxation. As a result, the credits have been the target of Republican ire ever since, especially after they achieved the trifecta of the White House, Senate, and House control in November.
Now, the reconciliation bill includes a mix of accelerated phaseouts and repeals of those credits, including the electric vehicle credits. The wording in the bill would restrict Chinese involvement in projects under this “foreign entities of concern” clause, and the reconciliation bill also specifically targets wind and solar power projects with restrictions. There are specific carveouts for nuclear projects that were included as a way to appease some moderates concerned about these cuts. And the last-minute changes to the bill specifically targeted restrictions on the clean electricity investment and production tax credits.
David D. Stewart: Now, what became of President Trump’s campaign promises? Things like no tax on tips, no tax on social security?
Katie Lobosco: So a lot of his priorities did get in the bill, but they got in as temporary measures, so they are only implemented for a certain amount of time. Why would lawmakers do this? That would reduce the overall cost over the 10-year budget window, which is how it’s usually estimated.
So, for Trump’s priorities, the bill does make tip and overtime income deductible through 2028. Now, the bill doesn’t touch Social Security specifically — that might run afoul of certain rules in the Senate — but it does increase the standard deduction for seniors by $4,000 through 2028. It also makes auto interest deductible for owners of cars made in the U.S. through 2028. The bill also creates what it calls Trump Accounts. These would be tax-advantaged savings accounts, and the government would contribute $1,000 for children born between 2025 and 2028, and it would also temporarily restore a trio of business tax cuts. This includes immediate expensing for domestic research and development through 2029, 100 percent bonus depreciation also through 2029, and 100 percent expensing for qualifying structures for which construction begins before the end of 2028 and the placed-in-service date occurs before the end of 2032.
David D. Stewart: Now, you mentioned that some lawmakers were having trouble with the price of this bill. So what did it come out to in the end? What sort of costs are we expecting from this bill?
Katie Lobosco: So the key takeaway here is that the bill overall will increase projected deficits by nearly $3 trillion over a 10-year period. Now, some Republicans are claiming it won’t add to deficits because the changes will spur so much economic growth, but that’s just not likely to be the case, according to a number of independent analysts.
Since there were last-minute changes in the bill, we don’t have a full official score from the Congressional Budget Office at this time, but the Penn-Wharton budget model has done its own estimates, and they find that the bill as written would increase deficits by $2.8 trillion over 10 years. The tax provisions alone would cost $4.3 trillion over 10 years. Most of that is due to the extensions of the TCJA’s individual and estate tax provisions. The bill also boosts spending on defense and border security. The House did find more than $1.5 trillion in savings, mostly from changes to Medicaid, food assistance programs, and changes to federal student loans, but that only partially offsets the cost.
David D. Stewart: So what are we expecting to happen next when this bill gets to the Senate?
Cady Stanton: That’s a really great question in terms of looking ahead. So passage through the House was a huge win for Republicans, and particularly for House Speaker Mike Johnson, who a lot of people honestly underestimated. He proved he can whip votes for passage within a very thin margin for his conference.
But there’s more tough work ahead for Republicans in the Senate, where members haven’t been shy to share their laundry list of desired tweaks. Top of the list for many members, as they told Katie and I, is more permanency on provisions that the House bill makes temporary, including the three big promises from President Trump on the campaign trail: no tax on tips, no tax on overtime, and a bonus deduction for seniors, all of which currently end in 2029, as Katie mentioned. And that would be at the end of President Trump’s presidency, as well.
There’s also a push to make permanent that trio of business tax cuts from the TCJA that Katie mentioned, and those had already started to expire or phase out, and this bill would restore them, and senators would really want to make that restoration permanent. As I said before, I also wouldn’t be surprised to see changes to the SALT cap, as well as a fresh look at the IRA credit changes in the bill. A few senators have already mentioned that they’re pretty worried about the impacts on their districts from repealing and phasing out these credits, where projects have been really bolstered by these tax credits.
Finally, jumping back to what Katie was saying about the cost, the deficit impact of the bill will likely take a pretty large role in conversations over the next few weeks, as it did in the House with the deficit hawks. The Senate is going to use this current-policy baseline we’ve talked about before, which gives them some more flexibility to their scoring on the legislation, but some deficit hawks — specifically Senators Rand Paul and Ron Johnson — have already said that they want to see deficit reduction be top of mind in talks of changes in the coming weeks. So expect that to be a big part of the conversation.
David D. Stewart: What are we expecting as far as the timeline? When should we expect movement to happen in the Senate?
Cady Stanton: It’s really tough to read exactly when the next step might be taken in the Senate, but there are a couple of important dates to pay attention to to see how things progress. The Senate won’t get its chance to leave its mark on the bill until it returns from recess June 2, but once they return, senators will get to work on their changes to the bill ahead of this July 4 deadline. That’s been suggested by Treasury Secretary Scott Bessent and reiterated by Republican leaders in recent weeks. There’s also the chance that after changing the bill in the Senate, the House wants to change it again, which would send it back to the Senate a second time and obviously would extend the timeline, as well.
Like the Memorial Day deadline that the House set for itself, this July 4 deadline is largely self-imposed, but members do have a hard deadline for this version of the bill because it includes a debt limit extension. The “X date” for the debt limit could come in early August, so Treasury Secretary Bessent has encouraged Congress to get that addressed by mid-July, and it has to be done by the end of July since the House and the Senate take the entire month of August off.
Now, it’s important to note that they could always pull the debt limit out of the bill and work on it separately, but that would definitely disrupt the balance of the legislation and create some problems that would require Republicans to go back to the drawing board on the bill and on reconciliation in general. Another big factor on the timing of when this moves to the Senate is how Republicans in that chamber choose to make the changes they want. I wrote a pretty in-the-weeds story recently on the procedural options that senators have for these changes, but what it really comes down to is how much of an opportunity members will push for to be heard on the changes they want.
Senate Majority Leader John Thune has said pretty openly that he wants to return to regular order in the Senate, which would draw out a process for amendments on the bill that would really stretch out work and create issues with the thin majorities that Senate Republicans have on their committees. But that process might also just be necessary, given how many people want changes, not just to the tax title of the bill, but also to areas like these SNAP and Medicaid program changes. Now, senators and their staff are likely working on filling out which of those choices they want to move forward with during recess, so it’s worth keeping an eye out for which method they decide upon.
David D. Stewart: Well, definitely sounds like they’re going to be keeping you two busy for the next few months. Thank you for being here.
Cady Stanton: Thanks, Dave.
Katie Lobosco: Thank you.
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