On Monday, Senate Republicans unveiled significant revisions to President Donald Trump’s second-term legislative agenda, sparking a potential conflict with the GOP-controlled House. Among the proposed changes are cuts to the child tax credit and state and local tax deductions, while some Biden-era climate programs would be temporarily preserved. This comes after the House passed Trump’s ambitious One Big Beautiful Bill in late May, which aims to extend tax cuts from Trump’s first term and fulfill new campaign promises, including eliminating taxes on tips and overtime wages, alongside substantial spending on immigration enforcement and national defense.
The Senate Finance Committee released its controversial proposals Monday afternoon, focusing on codifying trillions of dollars in tax cuts, primarily funded by slashing Medicaid, the federal health insurance program for low-income individuals. This measure markedly diverges from the House’s recent approval, which aimed to increase the maximum benefit of the child tax credit to $2,500. In contrast, the Senate proposes to reduce it to $2,200, tying it to inflation. Furthermore, while the House sought to raise the state and local tax credit (SALT) deduction cap to $40,000, the Senate aims to revert it to $10,000, consistent with current law.
Some House members have indicated they might block the Senate bill if it includes such a low SALT cap. “We’re all going to take it in stride. The House and us, we’re all in agreement that we’ve got to do something that can pass,” remarked Sen. Markwayne Mullin (R-Oklahoma), who is a key intermediary between Senate and House tax-writers. Given the power dynamics between the two chambers, alongside Republicans’ self-imposed July 4 deadline, the Senate bill has a higher chance of becoming law.
As Congress faces a midsummer deadline to raise the nation’s debt limit, which is the maximum amount of money the federal government can borrow, the urgency of passing a comprehensive bill is increasing. Failure to act could result in a devastating default. Republicans plan to use a process called budget reconciliation to navigate around a Democratic filibuster in the Senate, yet notable divides remain among Senate Republicans. For instance, Sen. Rand Paul (Kentucky) opposes the legislation due to its potential to increase the national debt, while others like Sens. Susan Collins (Maine), Josh Hawley (Missouri), Jerry Moran (Kansas), and Lisa Murkowski (Alaska) have expressed concerns regarding cuts to Medicaid.
Sen. Ron Wyden (Oregon), the leading Democrat on the Finance Committee, criticized the legislation as “class warfare.” He stated, “This is caviar over kids, and Mar-a-Lago over the middle class. This bill will drive the vulnerable into misery and drag down the middle class all for the benefit of the rich and powerful, a backward and punishing agenda in a country that’s supposed to provide opportunity for everyone.”
The Senate proposal goes further than the House concerning an accounting maneuver that states use to secure more federal Medicaid dollars. It suggests capping the taxes states charge providers at 3.5 percent of their net patient revenue, a reduction from the 6 percent cap proposed by the House. This change would affect states with Medicaid expansion, requiring them to gradually lower their taxes to meet the new threshold by 2031, while exempting nursing homes and facilities for individuals with intellectual disabilities.
To offset the costs associated with tax provisions—which could add nearly $4 trillion to the national debt over the next decade—the House proposed a swift phase-out of clean-energy tax credits from President Joe Biden’s Inflation Reduction Act. Conversely, the Senate’s bill maintains some of these credits, allowing wind and solar energy producers to keep their tax breaks until 2026, with a gradual phase-out over two years. For hydropower, nuclear, and geothermal energy firms, the phase-out will not commence until 2034.
Additionally, Senate Republicans included two childcare tax breaks—the child and dependent care tax credit and the employer-provided childcare tax credit—championed by Sen. Katie Boyd Britt (R-Alabama). This provision aims to expand the dependent-care assistance program, allowing workers to use pretax funds for childcare expenses, a measure absent from the House bill. “An overwhelming majority of American families, 81 percent of parents, have called on Congress to address the affordability and accessibility of childcare,” Britt noted in her statement.
