President Donald Trump’s multi-trillion-dollar tax and spending package recently advanced closer to enactment following its passage in the Senate.
The Senate’s version of the legislation introduced several modifications compared to the earlier House-approved bill, notably including deeper reductions to social safety-net programs and an accelerated timeline for phasing out clean energy tax breaks.
The bill adds $3.3 trillion to the national debt.
This comprehensive bill, a cornerstone of the administration’s economic agenda, is now slated for a House vote as Republicans aim to meet a July 4 deadline set by President Trump.
Tax cuts
The legislation aims to extend tax cuts for businesses and individuals that were initially enacted in 2017.
Additionally, it introduces new temporary tax breaks for specific groups, including tipped and overtime workers, the elderly, and individuals purchasing cars with loans.
For businesses, the Senate’s alterations are particularly beneficial, making permanent several tax deductions that were only temporary in the House version.
These include the ability to use depreciation and amortization as the basis for interest expensing, the research and development write-off, and a 100% bonus depreciation for certain property, such as machinery and factories.
This permanence is expected to encourage increased lending and corporate investment.
A significant point of negotiation was the State and Local Tax (SALT) deduction.
The Senate legislation incorporates a deal to raise the annual limit on this deduction to $40,000 for a five-year period, phasing out for taxpayers earning over $500,000 annually.
After this period, the limit is set to revert to the current $10,000 cap from the 2017 tax law.
The Senate also removed new limits that House Republicans had proposed on pass-through businesses’ deductions of state and local taxes.
Furthermore, the bill includes a provision to exempt workers from taxes on tip income up to $25,000 per individual, as well as overtime up to $12,500 per individual and $25,000 per couple, with these breaks running through 2028 and phasing out at $150,000 in income per person.
Social programs and environmental policy shifts
The legislation proposes substantial changes to social programs and environmental policies.
Spending on Medicaid, the health insurance program for the poor and disabled, is projected to be cut by nearly $1 trillion over ten years, potentially leading to 11.8 million Americans losing health insurance, according to the nonpartisan Congressional Budget Office analysis.
The measure introduces a new limit on “provider taxes” that states use to increase federal Medicaid funding, with a phased-in cap beginning in 2028 for states that expanded Medicaid under the Affordable Care Act.
New work requirements for Medicaid recipients are also included, with exemptions for the elderly, disabled, or those with children under 14.
Additionally, Medicaid beneficiaries who gained eligibility through the Affordable Care Act would face new cost-sharing requirements.
To mitigate some of the impact of these Medicaid cuts, the Senate added a $50 billion rural hospital fund, addressing concerns from rural lawmakers about potential hospital closures.
In terms of environmental policy, the bill accelerates the phase-out of green energy tax credits for wind and solar power.
The revised bill mandates that wind and solar projects must be in service by the end of 2027 to qualify for the tax break, a stricter requirement than a previous version that allowed projects under construction by that date to receive partial credit.
The Senate-passed measure also eliminates a planned excise tax on wind and solar projects utilizing a certain threshold of Chinese components.
The popular $7,500 tax credit for consumer purchases of new and used electric vehicles is set to end earlier, on September 30, 2025, rather than at the end of the year as previously considered.
Strategic investments and other measures
The package allocates significant funding towards defense and immigration initiatives, providing hundreds of billions of dollars for defense and approximately $45 billion for detention centers and nearly $47 billion for infrastructure at the southern border, including wall construction.
An auto loan tax deduction of up to $10,000 for interest payments on new vehicles assembled in the U.S. would be established from 2025 through 2028.
The investment credit for semiconductor manufacturers would be increased to 35% from 25%, aiming to incentivize new facility construction by an existing 2026 deadline.
Further provisions include an increase in the maximum child tax credit to $2,200 from $2,000 per child, which would also be made permanent and adjusted for inflation.
New tax-deferred “Trump” investment accounts for children would allow annual contributions of up to $5,000, with a $1,000 federal government contribution for U.S. citizen children born between 2025 and 2028.
The current 1.4% tax on private college and university endowments would increase for better-funded institutions, with a new tiered structure potentially climbing as high as 8% for colleges with the highest endowment income per student.
The funding cap for the Consumer Financial Protection Bureau would be nearly halved to 6.5% of the Federal Reserve System’s total operating expenses, reducing resources for the institution established to combat predatory lending practices.
Lastly, migrants and others sending money abroad would face a 1% tax on transfers, a reduction from the 3.5% levy in the House version.
The Senate also removed the 10-year ban on state AI regulation.
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