Senate Republicans’ tax and spending cut bill makes many of the core elements of their 2017 tax cuts permanent but scales back additional cuts from what the House passed.
The Senate Finance Committee unveiled its version of the central piece of President Trump’s “big, beautiful bill” on Monday.
The Senate bill locks in existing federal tax brackets, boosts the standard deduction and maintains the termination of personal exemptions — all without sunsets.
In contrast with the House version, the bill sets a lower increase for the child tax credit, raising it to $2,200 per child as opposed to the House’s $2,500.
The bill creates new deductions for taxes on tips, overtime pay and car loan interest but doesn’t make them fully deductible.
Tips are deductible up to $25,000 through 2028. Overtime pay is deductible up to $12,500, or $25,000 for joint filers, through 2028. Auto loan interest is deductible up to $10,000, also through 2028.
Notably, the legislation reestablishes the state and local tax (SALT) deduction cap at $10,000. The House had agreed after intense debate to raise it to $40,000. The reversion has incensed members of the SALT Caucus in the House who had threatened to vote against the measure absent the deal — and maybe President Trump as well, who promised to “get SALT back” while campaigning.
Senate Majority Leader John Thune (R-S.D.) told reporters on Monday that SALT would continue to be “a negotiation,” but the total reversion nullifies the tenuous deal struck in the lower chamber.
Additionally, the bill sets up savings accounts for children. Parents and relatives can contribute up to an inflation-indexed $5,000 annually of after-tax dollars into the accounts. For U.S. children born between 2024 and 2028, the government will contribute $1,000 per child into the accounts.
In addition to a smaller boost in the child tax credit, the bill adds restrictions to the earned income tax credit (EITC), another tax break geared to help low-income workers.
The new certification program for the credit will require taxpayers to provide information and documentation “as the Secretary by regulation requires.”
Critics of the provision were quick to point out that it will likely result in many new audits of lower-income taxpayers, which studies have shown can be biased against Black American taxpayers in particular.
“The EITC pre-certification requirement would lead to an unprecedented number of audits, overwhelmingly focused on low- and moderate-income workers,” Greg Leiserson, senior fellow at the New York University Tax Law Center, wrote on Monday.
Stanford University researchers found in 2023 that the IRS “disproportionately audits Black taxpayers” due in part to the way the earned income tax credit is administered.
The legislation extends the increased inheritance and gift tax exemption cap of $15 million for single filers and $30 million for married couples in 2026, indexing the amount for inflation.
The pass-through entity deduction — cherished by many businesses and always top of mind for Republicans — is kept at 20 percent and made permanent.
This is another difference from the House version, which increased it to 23 percent.
This pass-through deduction’s phase-in range is increased to $75,000 and $150,000 for joint filers. Changes are made for businesses designated as a “specialized service trade or business,” which covers some professional service industries.
Other business tax breaks are in the Senate text as well, including a trifecta of changes from 2017 that had already expired and were the subject of tax legislation that was voted down last year.
Research and development costs are made immediately deductible and will be retroactive to 2024.
Bonus depreciation, allowing companies to immediately deduct depreciation costs, is made permanent. The allowance is increased to 100 percent for equipment bought and used after Jan. 19, 2025.
Business interest expenses will get an increased cap of deductibility corresponding to the EBITDA accounting standard, as opposed to EBIT, which excludes depreciation and amortization costs. This is a tax break especially valued by leveraged buyout firms who finance investments with borrowed money.
