Congress won’t be heading home for their scheduled weeklong recess just yet. President Trump has made it clear he’s hoping to sign Republican’s landmark tax reconciliation bill on July 4; as a result, Senate Majority Leader John Thune (R-SD), and Speaker of the House Mike Johnson (R-LA), are planning to hold members in town until the legislation is complete.
The path forward in both the Senate and the House remains unclear as Republican leadership grapples with both outstanding and unfavorable parliamentarian rulings and divisions within and between chambers on major policy issues.
The “Byrd Bath”
As we discussed in Tracking Tax Reform: The Reconciliation Process, reconciliation bills have a privileged status in the Senate, allowing for expedited passage; however, they are subject to certain limitations — primarily the Byrd rule, which limits the types of provisions that can be included.
The Senate parliamentarian’s review of the bill, referred to as the “Byrd Bath,” has resulted in several unfavorable rulings over the last week. Senate Republicans must rewrite or exclude affected provisions; otherwise, they will be subject to a 60-vote threshold, which they will not be able to achieve as no Democrats are likely to support any portion of this reconciliation package. Additionally, as of this writing, there has been no ruling on the tax provisions inside the Senate’s proposal. Senate Finance Committee Ranking Member Jeff Merkley (D-OR) has been detailing the parliamentarian’s rulings on his newsroom page.
Outstanding Issues
Divisions remain inside the Republican conference, with members disagreeing on key policy issues, including:
- Total Cost: Deficit hawks are pushing for a lower net price tag on the monumental reconciliation bill, which is at odds with numerous specific concerns from the party’s more moderate members.
- Medicaid (And Other Non-Tax Provisions): Though the reconciliation bill is primarily focused on tax, many of the cost-saving provisions come from other areas, including Medicaid. Some moderate Republicans are skeptical of the Senate’s stricter Medicaid changes, meanwhile several deficit hawks are pushing for even steeper cuts.
- State and Local Tax (SALT): House SALT Republicans are insistent on keeping the $40,000 cap they settled on during earlier negotiations, a provision that would cost almost $350 billion over 10 years when measured against current law. Senate Republicans, who are not typically from high-tax states would like to minimize any increases to the current $10,000 SALT cap.
- Inflation Reduction Act (IRA): Moderates and deficit hawks are at odds over IRA provisions with the former looking for more targeted, gradual phaseouts and securing benefits for companies who have already invested and the latter aiming for a complete end to the program as soon as possible.
- Section 899 Retaliatory Tax: In recent weeks, there have been concerns over the potential impact of enacting the proposed Section 899. On June 26, Treasury Secretary Scott Bessent announced a deal with G-7 allies and asked Congress to remove the so-called “revenge tax” from the reconciliation bill.
Cost Estimates
The Senate has opted to use a current policy baseline — a novel approach to reconciliation that would assume the continuation of current policy doesn’t have any cost, regardless of its treatment under current law. Meanwhile, the House has opted to score their bill using a current law baseline — an approach that compares the cost of the proposal to its cost under current law, which includes upcoming expirations and modifications.
The Joint Committee on Taxation (JCT), the nonpartisan congressional committee responsible for providing official tax revenue estimates, has projected the following revenue effects for the tax section of each chamber’s proposal:
- House: $3.8 trillion decrease in revenues over 10 years, when compared against current law.
- Senate: $440 billion decrease in revenues over 10 years, when compared against current policy. The JCT also provided Democrats, at their request, with a preliminary estimate of the cost measured against current law, which came in at $4.2 trillion. It is important to note that these estimates do not contain any SALT compromise, which could cost hundreds of billions more.
Each chamber’s proposal includes cost-saving measures elsewhere in the legislation, bringing down the total cost of the bill. The total estimated budgetary effect of the House bill is $2.4 trillion. There is no estimate available for the Senate bill at this time.
Next Steps
As detailed in Tracking Tax Reform: A Closer Look at the Senate Finance Committee Tax Framework, there are several steps remaining in the Senate before the chamber can vote, including vote-a-rama. If the Senate successfully passes a version of the bill, it will head to the House, where it must pass in identical form before it can be sent to the president to sign into law.
Whether Republican leadership can win over a majority of members in each chamber remains uncertain.
Publication Schedule
Cherry Bekaert will be closed from June 30 through July 4 for our annual Summer Unplugged Week. Our tax policy team will be actively monitoring the status of the reconciliation bill and will provide an update the week of July 7.
In the meantime, our Tracking Tax Reform series is available on Cherry Bekaert’s Tax Policy and Legislative Changes page.
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