Proposed Changes to Trump’s Tax Bill

By David Morgan, Richard Cowan and Andy Sullivan

WASHINGTON (Reuters) – U.S. Senate Republicans on Monday unveiled proposed changes to President Donald Trump’s sweeping tax-cut and spending bill that would make some business-related tax breaks permanent while limiting the deduction for state and local income taxes, angering some colleagues in the House of Representatives.

The differing versions of the bill in the two narrowly Republican-controlled chambers could complicate party leaders’ aim of passing the bill, the centerpiece of Trump’s domestic agenda, before a self-imposed July 4 deadline.

The new changes faced early resistance from Senate Republican factions: one advocating deeper spending cuts to tackle the growing federal deficit and another wanting to preserve social safety nets like the Medicaid program for low-income Americans.

> “The problem is, it just simply doesn’t meet the moment. It’s inadequate,” said Senator Ron Johnson of Wisconsin, a leading deficit hawk opposing the bill without further spending cuts. “We’re not seriously addressing our long-term deficit and debt issue.”

A major change would maintain the current $10,000 cap on federal deductions for state and local income taxes, which is well below the $40,000 limit approved by the House last month, drawing immediate criticism from House Republicans whose constituents would benefit from the higher deduction. However, a committee document indicates that the amount is still open for negotiation.

The Senate Finance Committee proposal would also cap tax breaks on tipped income and overtime pay promised by Trump during the 2024 campaign. The House version allows deductions on tipped income for those earning up to $160,000 a year.

The bill aims to extend the 2017 tax cuts, Trump’s main legislative achievement during his first term, and increase spending for military and border security.

It also raises the federal government’s self-imposed debt ceiling by $5 trillion, which Congress must address by this summer to prevent a potentially damaging default on the nation’s $36.2 trillion debt.

> “I look forward to continued coordination with our colleagues in the House and the Administration to deliver President Trump’s bold economic agenda for the American people as quickly as possible,” said Republican Senate Finance Committee Chairman Mike Crapo of Idaho upon unveiling the revised bill.

With a narrow 53-47 Senate majority and a 220-212 edge in the House, Republicans can lose few votes to pass a bill facing united Democratic opposition.

The Senate version provides a deduction of up to $25,000 on tip income, phasing out for incomes above $150,000 for individuals and $300,000 for married couples. For overtime pay, Senate Republicans propose a $25,000 deduction for joint filers.

On Medicaid, the Senate provisions aggravated some Republicans by capping a health-care-related fee known as a provider tax at 3.5% by 2031, down from the current 6% in states that expanded Medicaid under the Affordable Care Act. While provider taxes have faced criticism as a loophole by budget watchdogs, rural hospitals argue they are essential for financial viability.

> “I’m alarmed by this,” said Senator Josh Hawley of Missouri, a supporter of Medicaid beneficiaries. “This is a whole new system that will defund rural hospitals.”

Before the Senate revisions, the nonpartisan Congressional Budget Office indicated the legislation would leave about 4.8 million Medicaid recipients uninsured.

Top Senate Democrat Chuck Schumer criticized the bill, stating its “cuts to Medicaid are deeper and more devastating than even the Republican House’s disaster of a bill.”

The Senate version also phases out subsidies for electric vehicles and green energy more aggressively than previous bills, leading to a drop in shares of U.S. solar energy companies in extended trading.

Additionally, the proposal includes important priorities for Senate Republican leadership by making certain business tax breaks permanent, like full expensing for domestic research and development and new capital investment for machinery and equipment, as per released documents. These tax breaks are temporary in the House version.

A retaliatory tax aimed at foreign investors mirrors the House version but would be delayed until 2027.

The Senate will now debate the modified text of Trump’s One Big Beautiful Bill Act, which will need to pass the Senate and return to the House for another vote before Trump can sign it into law.

> “It’s still a work in progress,” said Senator John Hoeven of North Dakota. “People are still offering ideas. Each time, they’re improving it and getting us closer… it will still change some.”