Tax Bill Moves on to the Senate—What's Next?

The bill includes trillions of dollars in tax-code changes, including:

• Makes permanent the 2017 tax cuts. The individual provisions in 2017's Tax Cuts and Jobs Act, which was passed during Trump's first administration, are set to expire at the end of 2025 without congressional action. The One Big Beautiful Bill Act makes those provisions permanent.
• Increased standard deduction: For 2025 through 2028, the standard deduction will be $16,000 (up from $15,000) for individuals and $32,000 for couples.
• Increased child tax credit: The current $2,000 child tax credit is made permanent. In addition, the bill temporarily increases the credit to $2,500 for 2025 through 2028.
• Estate tax: Beginning in 2026, the amount of assets that can be inherited without triggering the estate tax will rise to $15 million. That figure will be indexed to inflation in subsequent years.
• No tax on tip income. A key pledge from Trump's 2024 campaign, tips will not be taxed for 2025 through 2028, subject to a number of restrictions on who is eligible.
• No tax on overtime hours. Another pledge from the president's campaign, there will be no tax on overtime hours worked for 2025 through 2028, again subject to restrictions and income limitations.
• Enhanced deduction for seniors. Seniors ages 65 and older will receive a special deduction of $4,000 for 2025 through 2028. The deduction applies to those who use the standard deduction as well as those who itemize their deductions, but only those with a modified adjusted gross income under $75,000 ($150,000 for couples) are eligible.
• No tax on car loan interest. Taxpayers are eligible for a deduction of up to $10,000 a year for interest paid on an auto loan, provided the vehicle is built in the United States. Eligibility phases out for taxpayers whose income exceeds $100,000 ($200,000 for couples). The provision expires at the end of 2028.
• Increases the state and local tax (SALT) deduction cap. The bill raises the cap to $40,000 from $10,000 for filers earning less than $500,000. This was a critical provision for securing the votes of a small group of House Republicans representing high-tax states like California, New Jersey and New York.
• Savings accounts for newborns. The bill gives all babies born between January 1, 2025, and December 31, 2028, a $1,000 savings account. Parents can add up to $5,000 a year until the child turns 18.
• Increased tax on private foundations. The bill replaces the current flat 1.39% excise tax on the net investment income of private foundations with a tiered system. For foundations with assets under $50 million, the current rate will not change. It will rise to 2.78% for foundations with assets between $50 million and $250 million; 5% for foundations between $250 million and $5 billion; and 10% for foundations with assets above $5 billion.
• Increased tax on college and university endowments. Creates a tiered system based on the size of the endowment on a per-student basis. The current tax rate of 1.4% could rise to as high as 21% for the largest endowments.
• Ends green-energy tax credits. The bill winds down most of the tax credits that were approved by Congress in 2022 as part of the Inflation Reduction Act. The current $7,500 tax credit for the purchase of an electric vehicle, for example, would be eliminated for most vehicles at the end of 2025 and all vehicles at the end of 2026.
• New tax on remittances. The bill proposes a 3.5% tax on remittances, applicable to any individual who is not a U.S. citizen or U.S. national and transfers cash overseas. While the provision is ostensibly targeting illegal immigrants who send cash to their home countries, there are concerns it could impact routine transactions by non-U.S. investors. Many industry observers believe that the tax only applies to remitters who are in the U.S. at the time of transfer. As the bill moves to the Senate, U.S. financial companies are working with trade associations to better understand the language of the bill, educate policymakers and protect the interests of international clients investing in the United States. 

The legislation passed by the House of Representatives includes spending cuts from many domestic programs while also boosting defense spending by $150 billion and spending for border security and immigration policy by nearly $50 billion. The bill makes major changes to the eligibility requirements for Medicaid and the Supplemental Nutrition Assistance Program, or SNAP (more commonly known as food stamps), by adding work requirements that could make millions of recipients ineligible for aid. Student loan repayment programs are consolidated into a single plan that could increase costs for many students.

Spending cuts in the bill do not balance out the cost of the tax cuts. The non-partisan Congressional Budget Office (CBO) has estimated that the bill will increase the national debt by more than $3 trillion over the next decade. An updated CBO estimate that takes into consideration late changes to the House-passed bill is expected soon.

The bill increases the debt ceiling by $4 trillion. The debt ceiling is the congressionally mandated cap on the total amount of debt the United States can accumulate. The limit was suspended by Congress in 2023 but returned on January 2, 2025. The Treasury Department is currently using cash on hand to pay its bills and taking a variety of "extraordinary measures" to ensure the United States does not default. Treasury Secretary Scott Bessent warned Congress earlier this month that those steps will run out sometime in August and that Congress must raise the debt ceiling by then. Since Congress is typically in recess for the month of August, it is widely believed on Capitol Hill that the true deadline for passing the tax bill is the end of July, so that the debt ceiling is increased before lawmakers leave Washington for the August break. The United States has never defaulted, but market volatility has historically increased whenever Congress nears the default deadline.

Senators are widely expected to make significant changes to the bill, though their priorities are often in conflict. Some senators would like to see larger spending cuts, while others are concerned about the impact of Medicaid and SNAP cuts to low-income residents in their states. Some senators are concerned about the changes to green-energy tax credits that have benefitted local projects and voters. And the SALT deduction, which is essential for a handful of moderate Republicans in the House, is not a priority for most senators and could be reduced. Senators have other tax priorities that they may want to see included in the bill, as well.

The Senate is considering the legislation under a parliamentary procedure known as "budget reconciliation." The process includes limited time for debate, limited amendments and, crucially, provides that the legislation cannot be filibustered and thus does not require a 60-vote supermajority to pass. The bill can be passed with a simple majority. Republicans hold a 53-47 margin in the Senate, meaning they can lose up to three votes and still pass the bill (the vice president would cast the tie-breaking vote in the event of a 50-50 tie). Senator Rand Paul (R-Ky.) has already indicated he will oppose the bill due to its impact on the national debt, while Senator Ron Johnson (R-Wisc.) has said that he will vote "no" unless significantly more spending cuts are included. Most senators will wait to see what emerges from the internal negotiations before deciding whether to support the final compromise.

Assuming the Senate passes a modified version of the bill in late June, the legislation would then have to go back to the House for another vote because both chambers must pass the exact same legislation. That could be tricky, given the delicate balance that produced the 215-214 vote in the House earlier this month. Republican leaders have set a deadline of July 4th to have the bill pass both chambers and send it to the president for his signature, but it would not be surprising to see the process drag past that date and into mid- to late July.