House and Senate Republicans Differ on Provisions of Proposed Tax and Spending Bill
House and Senate Republicans Differ on Provisions of Proposed Tax and Spending Bill
The House of Representatives passed its version of a large tax and spending bill, referred to as the “One Big Beautiful Bill Act” (OBBBA), on May 22nd. The Senate is now considering its version of the bill, with significant differences emerging between the two chambers’ proposals. The bill aims to make many of the 2017 tax cuts permanent and includes various provisions impacting taxes and spending, including changes to the child tax credit, state and local tax (SALT) deductions, Medicaid, and clean energy tax credits.
Regarding the child tax credit (CTC), the House bill temporarily increases the credit to $2,500 per child from 2025 to 2028, indexing it for inflation starting in 2027. The Senate proposes a smaller, permanent increase to $2,200, with inflation indexing beginning next year.
On SALT deductions, the House bill raises the cap from $10,000 to $40,000 for joint filers earning less than $500,000, phasing out for higher earners. The Senate proposes to maintain the $10,000 cap.
Both the House and Senate bills include provisions related to deductions for tips and overtime pay, but with differing limitations. The House bill offers a deduction for tips received in customarily tipped jobs and a deduction for overtime equal to the amount earned. The Senate bill limits the tip deduction to $25,000 and the overtime deduction to $12,500 per taxpayer.
Both bills also provide a deduction for interest paid on loans for US-made vehicles (up to $10,000), and instead of directly addressing Social Security, they offer larger tax deductions for those aged 65 and older. The House sets this deduction at $4,000, while the Senate proposes $6,000. Income limits for these deductions exist in both versions.
Concerning Medicaid, the House bill includes provisions that could result in significant cuts to the program. The Senate proposes capping Medicaid provider taxes at 3.5%, a reduction from the current effective cap of 6%, with exceptions for nursing homes and intermediate care facilities. This change is intended to be implemented gradually for states that expanded Medicaid under the Affordable Care Act, reaching 3.5% by 2031.
The House bill allows for full deduction of equipment purchases and domestic research and development expenses for five years, while the Senate bill makes these tax breaks permanent. Both chambers aim to scale back clean energy tax credits enacted under the Inflation Reduction Act, but the Senate proposes a slower phase-out than the House.
Other differences include the House bill’s allowance for using health savings accounts (HSAs) to pay for gym memberships (capped at $500 for single filers and $1,000 for joint filers), which is absent from the Senate bill. The House reinstates a charitable deduction for non-itemizers at $150, while the Senate increases it to $1,000. The House also includes a proposed annual fee for electric vehicle (EV) and hybrid owners, which the Senate excludes.
The House bill is projected to add nearly $4 trillion to the deficit over the next decade, despite proposed spending cuts. The Senate is reportedly considering further spending cuts, including measures targeting “waste, fraud, and abuse” within the Medicare program, focusing on overpayments in Medicare Advantage plans. Senator Josh Hawley expressed concerns about the potential negative impact of proposed changes on rural hospitals.
President Trump has publicly urged the Senate to pass the bill, while some Republican senators and other figures, including Elon Musk, have voiced criticism of the bill’s provisions and fiscal impact.
Negotiations between the House and Senate are ongoing to reconcile the differences between the two versions of the bill before it can be sent to President Trump for consideration. The stated goal is to have the legislation on the President’s desk by July 4th. However, significant disagreements remain on key provisions, making the timeline uncertain.
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