Deeper Medicaid cuts, limited tax breaks for tips: What's in the Senate tax bill

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Deeper Medicaid cuts, limited tax breaks for tips: What's in the Senate tax bill The bill text released June 16 sets up a potentially explosive confrontation with House Republicans.
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WASHINGTON – Senate Republicans are proposing deeper cuts to Medicaid than the House of Representatives' recently passed budget bill, to help pay for President Donald Trump's major tax cuts under a budget plan released on June 16.
The measure released by GOP leaders serving on a key panel responsible for writing the nation's tax laws also seeks a more limited tax cut for tips and overtime than the House, changing one of Trump's most recognizable 2024 campaign promises.
Setting up a showdown with the Republican-led House, which adopted its own version of Trump's so-called "big beautiful bill" in late May, the Senate Finance Committee would not increase the federal deduction for state and local taxes from $10,000 to $40,000 for people earning less than $500,000 per year. Senate Republicans plan to continue to negotiate changes to the so-called SALT tax deduction.
The proposal is the culmination of weeks of negotiations among Senate Republicans on the GOP bill that would be Trump's biggest legislative accomplishment in his second term thus far. Senators have been pushing to complete work on the package by July 4, before reconciling changes with the House and passing the bill before August.
They have been walking a fine line since the House passed their version three weeks ago: Several senators have demanded deeper spending cuts to the bill, as the House's version is expected to add $2.4 trillion to the deficit over the next 10 years, while others are concerned that potential cuts to Medicaid and green energy tax credits go too far.
Meanwhile, any changes they make could disrupt the delicate balance in the House, where Republicans have only a three-vote margin.
The House-passed version of the bill would extend Trump's 2017 income tax cuts and implement new temporary tax breaks for tips and overtime. It would create new federally-seeded savings account for children and give seniors an additional tax credit. It would pour billions of dollars into the administration's deportation plans and on defense.
And it would add new restrictions to benefit programs like Medicaid and food stamps in an effort to balance out the cost of the sweeping bill, including new Medicaid work requirements for able-bodied adults without children. The House's Medicaid changes are expected to save at least $625 billion and cause 7.6 million Americans to lose their health insurance over the next 10 years, according to initial estimates by the nonpartisan Congressional Budget Office.
A CBO estimate released on June 12 showed that the bill would decrease resources for low-income households while boosting resources for middle- and high-income households.
Deeper Medicaid cuts
As in the House, the Senate has fiscal conservatives who are concerned that the bill will add to the federal deficit and others who have problems with the potential impact on Medicaid health coverage.
Appeasing one camp is difficult to do without inflaming the frustrations of the other, forcing Republican leaders to strike a balance to get the votes they need, as no Democrats are expected to support the proposal.
Sen. Josh Hawley, R-Missouri, and Sen. Jim Justice, R-West Virginia, have been critical of a provision in the bill that limits states from raising money to pay for their part of Medicaid spending through health-care-related taxes known as "provider taxes."
But instead of rolling back the House's proposal, Senate lawmakers made deeper cuts to Medicaid through changes to the provider tax.
They proposed gradually reducing the threshold by which states can guarantee providers will be paid back for contributing to the state's Medicaid funding, which boosts the amount the federal government matches. Right now, states can guarantee reimbursement if tax revenues make up 6% or less of revenues from treating patients. That limit would be gradually reduced to 3.5%.
No taxes on tips, overtime
A handful of Trump's key campaign promises would be scaled back under the Senate's version of the bill as opposed to the House's in order to rein in the cost of the package.
The Senate's proposal would create a new tax deduction on overtime of up to $12,500 for an individual who makes $150,000 or less in a year.
It would also create a tax deduction on tipped wages of up to $25,000 for people who make $150,000 or less.
In the House's version, tax breaks for overtime and tips would have no limit and would apply to people who make $160,000 or less.
SALT math
The Senate had made it clear they planned to make some changes to a hotly-contested provision that would benefit people who live in high-tax states: State and local tax deductions, known as SALT.
A handful of Republican lawmakers in the House who represent districts in Democratic-controlled states such as New York, New Jersey and California pushed to raise the $10,000 cap on SALT deductions to $40,000 for people earning less than $500,000 per year.
But unlike in the House, there are no Republican senators who represent high-tax states that could benefit from the deduction. Adding a cap to the deduction, which Republicans approved during Trump's first presidency, "was one of the best reforms that we had in the bill," said Senate Majority Leader John Thune.
The package, as released on June 16, would eliminate that deal and keep the existing $10,000 cap.
Some of those GOP lawmakers in the House have already said they won't vote for the bill in the House if their deal on SALT is abandoned.
Changing the deal "would be like digging up safely buried radioactive waste – reckless, destabilizing and sure to contaminate everything around it," Rep. Nick Lalota, R-New York, told reporters on June 4.