Reassessing a GOP tax bill

Politico

27-05-2025

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A BREAK FROM THE FUN: The Senate returns next week to take center stage in the debate over the one big, beautiful bill, after a couple months where the large fiscal package seemingly stood on a knife's edge in the House.
But already, the Senate GOP's terms are starting to be laid. Sens. Ron Johnson (R-Wis.) and Rand Paul (R-Ky.) both took to television over the weekend to call out what they see as a poor House product, though neither specifically criticized the other chamber's approach on taxes. (Johnson wants more spending cuts, while Paul isn't happy about the proposed debt ceiling increase.)
Meanwhile, President Donald Trump said he expects the Senate to change the House bill and even to make major alterations. All the while, House Speaker Mike Johnson keeps practically begging the Senate not to deviate too much from what his chamber passed last week.
So what does that mean for the future of the GOP tax bill? There are at least two major pressure points. A good number of Senate Republicans have taken issue with how aggressively the House fiscal package targets the green energy incentives that Democrats enacted almost three years ago.
And there's basically no natural constituency within the Senate GOP for a huge hike in the $10,000 cap on state and local deductions, even as Republicans there understand the political need for a SALT fix in the House.
Other issues will pop up, too. Senate Finance Chair Mike Crapo (R-Idaho) reiterated last week that he wants to permanently install tax breaks for business, like full expensing of capital investments and immediate deductions of research costs.
House Republicans were only able to restore those incentives for several years, because they essentially ran out of money — which speaks to a potential broader challenge that the GOP might have in hashing out a final tax agreement.
MORE ON THAT in a bit, but first thanks for joining this recess version of Weekly Tax. Anyone know a tax angle to the cheese rolling contest?
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FINDING THAT MIDDLE GROUND: Here's that potential trillion-dollar challenge — in the end, the House budget only allowed Republicans to cut taxes by $4 trillion over a decade, because of the amount of spending cuts they were able to produce.
But on the other side of the Capitol, the Senate GOP essentially has set aside more than $5 trillion for tax cuts.
It's not quite a direct comparison, because the two chambers began this process using different baselines to score the costs of extending the expiring individual provisions of the Trump tax cuts — something that's provided its own challenges.
The end result, though, is that the two chambers have sizably different visions for tax cuts this deep into the process. Contrast that, for instance, with the Tax Cuts and Jobs Act, in which the $1.5 trillion cost was agreed to far earlier in the process.
That also presents some interesting tactical questions for Crapo and Senate GOP leaders, even if the assumption is that the final tax bill will cost somewhere between $4 trillion and $5.3 trillion.
Crapo hasn't said whether the Finance Committee will hold a markup of the tax bill, though it wouldn't be a huge surprise if Republicans decide against it.
Either way, Rohit Kumar of PwC said that it would be unusual for the panel essentially to give back some of the dollars it allotted for tax cuts. Not only that, it could cause problems — GOP leaders might have to fend off amendment efforts on the floor to use up what senators would see as free money for their various (and potentially popular) tax priorities.
'This is where the absence of a consensus instruction is going to become a little bit of an issue,' said Kumar, who was a longtime senior aide to Sen. Mitch McConnell (R-Ky.) when he was the GOP floor leader.
But on the flip side, using the full amount for tax cuts allowed under the Senate budget instructions could make it more difficult to reconcile the two chambers' fiscal packages.
Still, 'one of the ironclad rules of writing a reconciliation bill, at least when I was there,' Kumar added, 'is you used every penny available. You didn't want to leave any loose ends.'
LIKING WHERE IT'S HEADED: Here's some good news for Republicans as they press ahead on the 'one big, beautiful bill' — some of their key constituencies on K Street are quite happy with where things stand.
Consider, for instance, the small business lobby. The National Federation of Independent Business has been working for months, dating to well before last year's election, to lock in TCJA's 20 percent deduction for pass-through companies for good.
Then the group got more than it even asked for in the House bill, in the form of a 23 percent deduction.
Brad Close, NFIB's president, said that makes for a big contrast with the last big GOP tax bill. Back in 2017, the group wasn't thrilled with what the House produced originally and worked with allies like Johnson and Sen. Steve Daines (R-Mont.) to boost the tax relief offered to pass-throughs, as Republicans also were slashing the corporate rate from 35 percent to 21 percent.
This time around, the House has given the NFIB and other small business advocates an unexpected windfall that they'll work to protect with a group of Senate Republicans that doesn't sound like it wants to skimp on tax cuts.
'When you looked at how the bill was being put together, it wasn't apparent that's a point they would get to,' Close said. 'We were really happy.'
Not all small businesses are feeling great about the House tax bill. Indeed, some are quite concerned about a provision in the House bill that will keep certain service providers from writing off their state and local taxes.
But NFIB's current stance also sheds even more light on the challenge that Senate Republicans will have in putting their tax bill together.
On the one hand, Republicans in both chambers are, big-picture wise, on the same page about what needs to be in a tax bill. That includes permanent extensions of the Trump tax cut provisions and Trump's targeted ideas, like no tax on tips.
In fact, House Republicans even laid the groundwork for the Senate to use that controversial current policy baseline, by slightly tweaking a number of individual TCJA provisions. That will allow those proposals to have some fiscal impact against the baseline, a requirement in the Senate under budget reconciliation rules.
But the expanded pass-through deduction also underscores that even a Senate that's predisposed to bigger tax cuts might have to make difficult decisions on what makes the cut.
For instance, Crapo has said that his colleagues have given him around 200 suggestions for what they'd like to see in a tax bill.
For his part, the NFIB's Close said they're satisfied that their original goal in this process — the Senate cutting the pass-through deduction back to the original 20 percent and making it permanent — now looks more like a worst-case scenario.
'All the conversations we had leading up to this in the Senate was folks who fully understood what permanence meant,' said Close.
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