The Senate barely pushed through its version of the “big, beautiful bill” on Tuesday after the typical “vote-a-rama” amendment procedure that’s allowed under budget rules.
The slim 51-50 vote margin sets up a frantic few days in the House, where Republicans now have to figure out how to unite to get a bill to President Donald Trump’s desk before his self-imposed July 4 deadline.
Vice President JD Vance broke the tie after three GOP senators defected and voted against the measure, bringing the tally to 50-50.
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GOP Sens. Rand Paul of Kentucky, Thom Tillis of North Carolina, and Susan Collins of Maine joined all Democrats in the chamber in opposition to the bill.
The legislation, dubbed the “One Big Beautiful Bill Act,” passed with the backing of a key skeptic of its most controversial provisions—Republican Sen. Lisa Murkowski of Alaska—who persuaded Senate leadership to include several provisions uniquely beneficial to her state to secure her support.
The measure, which would fulfill most of Trump’s legislative agenda, would permanently extend nearly $4 trillion in expiring tax cuts, create several new tax breaks, fund border and immigration enforcement and air traffic control upgrades, cut Medicaid and other safety net programs, and more.
It would raise the statutory debt ceiling, which the Treasury Department says must happen before August, by $5 trillion.
The Congressional Budget Office estimates that the Senate version of the bill would add roughly $4 trillion to the national debt—$1 trillion more than the House version—over the next decade, and even more if Congress votes later on to remove several expiration dates built into the legislation.
The House Freedom Caucus, which was founded by several GOP lawmakers to advocate for fiscal discipline, had warned Senate Republicans on Monday to make major changes to the bill to “at least be in the ballpark of compliance with the agreed upon House budget framework.”
“It’s not what we agreed to,” the caucus wrote in a statement. “Republicans must do better.” The bloc did not immediately respond to the Senate vote.
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Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement that the Senate bill would add $600 billion to the deficit in 2027 alone and push deficits above 7% of gross domestic product.
“The level of blatant disregard we just witnessed for our nation’s fiscal condition and budget process is a failure of responsible governing,” MacGuineas said. “These are the very same lawmakers who for years have bemoaned the nation’s massive debt, voting to put another $4 trillion on the credit card.”
“The Senate took a bill that already borrowed way too much, and took it from bad to worse,” MacGuineas added.
Speaking with reporters after the vote, Murkowski said the choice was “agonizing,” but that she “had to look on balance, because the people in my state are the ones that I put first.”
“We do not have a perfect bill by any stretch of the imagination. My hope is that the House is going to look at this and recognize that we’re not there yet,” she said.
Collins, who is up for reelection in Maine next year, said that she supported the bill’s provisions extending tax cuts and benefits.
“My vote against this bill stems primarily from the harmful impact it will have on Medicaid, affecting low-income families and rural healthcare providers like our hospitals and nursing homes,” she wrote on X. “The Medicaid program has been an important healthcare safety net for nearly 60 years that has helped people in difficult financial circumstances.”
Trump was at an event in Florida when the vote occurred, touring a detention facility for migrants set in the Everglades. The president’s megabill also includes a significant increase in funding for border security and defense.
“Oh, thank you,” Trump said amid applause when he was told the news of the vote. “I was also wondering how we’re doing, because I know this is prime time.”
Key tax provisions in the Senate bill
The following are some of the more significant tax provisions in the Senate’s version of the One Big Beautiful Bill Act, according to a brief from the California CPA Society: [Editor’s note: This information is as of June 30, before today’s Senate vote.]
Bonus depreciation: Under Internal Revenue Code (IRC) Section 168(k), bonus depreciation allows for an immediate and full deduction of depreciation expenses related to qualified property placed in service after Sept. 27, 2017, and before Jan. 1, 2023.
After this cutoff, the bonus depreciation allowance gradually phases out by 20% each year until it reaches zero beginning in years after 2026. The Senate bill would permanently extend the depreciation deduction and allow for 100% expensing in the year placed in service for qualified property.
It also makes the rules applying bonus depreciation to long-term contracts via the percentage of completion method permanent, and it allows nonresidential real property used in manufacturing, production, or refining of tangible personal property to qualify for bonus depreciation if it meets certain requirements. Both of these proposals align with the proposals in the House bill.
The Senate bill differs from the House bill in the timing of the provisions. For example, the House bill merely extends the bonus depreciation provision through 2029 while the Senate makes it permanent.
In addition, for nonresidential real property used in manufacturing, production, or refining of tangible personal property, the Senate bill shortens the window to place the property in service and qualify for the bonus depreciation by moving the end date up from the House-proposed Jan. 1, 2033, to Jan. 1, 2031.
According to a summary provided by the Senate Finance Committee, making bonus depreciation permanent and extending it to manufacturing intends to boost domestic production and investment.
Research and experimental expensing: In another move aimed at stimulating domestic investment, the Senate bill permanently reinstates the deduction of domestic research and experimental expenditures (REEs).
The current legislation requires taxpayers to capitalize and amortize domestic-sourced REEs over a five-year period while foreign-sourced REEs are capitalized and amortized over a 15-year period. Both bills require taxpayers to reduce their REEs by the allowable Credit for Increasing Research Expenditures (R&D credit) or elect the reduced R&D credit under IRC §280C.
The proposed Senate bill allows for the deduction of REEs in the year incurred while still capitalizing and amortizing foreign-sourced REEs. As an alternative, taxpayers may choose to consider certain REEs as deferred expenses similar to the rules described by IRC §174 before its amendment by the TCJA.
As an offramp for taxpayers capitalizing REEs over the past several years, the Senate bill permits taxpayers to accelerate remaining amortization deductions over a one-year or two-year period. Lastly, small businesses with average annual gross receipts of $31 million or less can retroactively deduct their domestic REEs applicable to years beginning after Dec. 31, 2021.
Again, the main difference between the House bill and Senate bill lies in timing. The House bill temporarily allows the immediate deduction of domestic REEs until 2029 while the Senate makes the immediate deduction permanent. In addition, the House bill does not allow businesses to retroactively deduct expenses or utilize a catch-up method.
Interest deduction: The business interest deduction under IRC §163(j) is limited to the combination of the total of the taxpayer’s business interest income during the year, 30% of the taxpayer’s earnings before interest and taxes (EBIT), and the taxpayer’s “floor plan financing interest.” Floor plan financing interest consists of interest on debt used to finance motor vehicles.
The Senate and House bills provide a more favorable calculation of the interest deduction by adjusting the calculation to use earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than EBIT. They also modify the definition of motor vehicle to include certain campers and trailers.
Certain members of the House and Senate hope that broadening the interest deduction will make it easier to purchase equipment and facilities that will stimulate economic growth.
Some businesses and lawmakers laud the popular “big three”—bonus depreciation, research and experimental expensing, and the interest deduction—as tax provisions that could foster economic growth and innovation. Sticking points in getting them through the Senate and the House revolve around their cost. These provisions make up a substantial part of the One Big Beautiful Bill Act’s impact on the deficit.
SALT cap: One of the most contentious items in the reconciliation package is the cap on state and local tax (SALT) deductions paid by a taxpayer. Current law allows taxpayers to deduct up to $10,000 in state and local taxes with the cap on the deduction sunsetting after 2025. Members in the House, specifically the House SALT caucus, negotiated a hard-fought deal with Speaker Mike Johnson (R-LA) to raise the SALT deduction cap to $40,000.
For individuals with modified adjusted gross income (MAGI) exceeding $500,000, the cap undergoes a phaseout that reduces the cap down by 30% until it reaches a floor of $10,000. After the tax year ended Dec. 31, 2026, the House bill increases the cap, and MAGI phases out by 1% until 2033 where it will remain constant thereafter.
The House bill also does not allow pass-through entity taxes (PTET) paid by pass-through entities considered specified service trade or businesses (SSTBs), as defined under IRC §199A, to be deducted.
The Senate bill departs from the House bill by capping the SALT deduction back at the original $10,000 and by allowing PTET paid by SSTBs to be deducted. Under the Senate bill, owners of pass-through entities may deduct up to $10,000 of their individual allotted deduction plus the greater of $40,000 or 50% of PTET paid. Given the staunch resistance of the SALT caucus to a SALT deduction cap lower than $40,000, the Senate is maintaining that the current provision in the bill is a place holder and subject to change.
SSTBs, as defined by the IRC §199A, include law, accounting, and investment firms.
International tax items: On the international tax side of things, the Senate adjusted the current tax regimes with an aim to incentivize businesses to operate domestically as opposed to overseas.
GILTI and FDII: The House and Senate Bills adjust the effective rates of global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) by decreasing the applicable deduction percentages.
In the House bill, lawmakers increased the effective rate of GILTI from 10.5% to 10.878% and the FDII from 13.125% to 13.335%. The Senate bill hikes the rates for FDII and GILTI to 14%. In addition to these changes, the Senate bill proposes various alterations to each of these calculations.
BEAT: Lawmakers modified the base erosion anti-abuse Tax (BEAT) through rate and calculation adjustments. The House bill increases the BEAT rate from 10% to 10.1% and allows taxpayers to continue utilizing tax credits in the calculation. The Senate bill differs from this approach by increasing the tax rate to 14% and removing the ability to utilize credits in the calculation. It also excludes payments from foreign jurisdictions that are subject to an effective tax rate of 18.9% or more and reduces the base erosion threshold from 3% to 2%.
Proposed §899: In both versions of the One Big Beautiful Bill Act, lawmakers codified a tax measure aimed at targeting “unfair foreign tax regimes.”
Clean energy credits: The Senate and House bills repealed many of the clean energy credits enacted by or adjusted by the Inflation Reduction Act of 2022. The House Bill proposed aggressive rollbacks that required energy projects to begin construction within 60 days of the bill’s passage to take advantage of the investment and production tax credits (which apply commonly for things like solar and wind).
For these credits, the Senate bill softened this proposal by positing that qualifying projects beginning construction in 2025 would receive 100% of the available credits, projects beginning construction in 2026 would 60% of the credits, and projects beginning construction in 2027 would receive 20% of the available credits.
In 2028, the credits would not be available. The Senate bill preserved the credits relating to hydro, nuclear, and geothermal energy until 2034.
Energy-efficient buildings: Under current law, taxpayers can deduct expenditures related to the construction of energy-efficient buildings on square footage basis under §179D. The Senate bill terminates this deduction for properties constructed after 12 months after the enactment of the bill.
Considerations for foreign entities of concern were included in the bill for many clean energy tax credits. Depending on how the final version of the bill is written, taxpayers may find themselves with property that no longer qualifies for a tax credit based on their vendors, deal structure, or other factors.
Compensation and benefits: One of the major promises put forth by Donald Trump during his campaign for president centered around no taxes on tips and overtime. Current legislation includes tips and overtime in W-2 wages, which are taxed accordingly via income and employment taxes.
The House and Senate bills propose different ways to eliminate the taxes on tips and overtime.
No tax on tips: The Senate bill allows a deduction limited to $25,000 of qualified tips while the House bill does not specify a limit to the deduction it proposes. Both bills limit eligibility for the deduction to taxpayers that work in historically tipped occupations.
This deduction for tip income is available to itemizers and taxpayers claiming the standard deduction. Lawmakers define qualified tips to be cash tips given voluntarily at an amount up to the payer’s discretion that isn’t subject to negotiation in each proposal.
Representatives in the House and the Senate exclude highly compensated individuals from taking the deduction. The House defines highly compensated taxpayers as individuals earning more than $160,000 and automatically excludes them from the deduction.
The Senate carves out these highly compensated taxpayers by using a graduated phaseout for taxpayers with MAGI exceeding $150,000 (or $300,000 for joint returns). This deduction for tip income will sunset Dec. 31, 2028, according to both legislative bodies.
No tax on overtime: The “no tax on overtime” provisions from the House and the Senate follow a similar methodology as the tips provisions by providing a deduction for overtime compensation.
The Senate bill limits this deduction for qualified overtime compensation up to $12,500 (or $25,000 for joint returns) while the House bill doesn’t specify a limit on the deduction. In this case, qualified overtime compensation consists of compensation above the regular rate in exchange for working more hours than the standard set forth in the Fair Labor Standards Act of 1938 (FLSA).
Both provisions preclude highly compensated individuals from claiming the overtime deduction. According to the Senate provision, taxpayers with MAGI above $150,000 wishing to deduct overtime compensation are subject to a graduated phaseout of the deduction while the House excludes anyone making more than $160,000. Both of the proposed deductions are schedule to sunset after 2028.
Even though lawmakers are proposing removing taxation on tips and overtime, they are still requiring these income streams to be reported separately on the W-2. The IRS would update withholding tables if the deductions were enacted.
Tribune News Service contributed to this report.
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Tags: Congress, Legislation, Senate, Taxes, Trump tax cuts, Trump tax plan
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